Sunday, April 10, 2016

Incoterms: the "Fine Print" in International Sales Contracts

Incoterms are a set of internationally-adopted and recognized terms that define the obligations, risks, and costs of the sellers (exporters) and buyers (importers) of goods and are part of the contract of sale between the buyer and seller of goods. Incoterms (an acronym for “International Commercial Terms”) define the responsibilities of  the buyer and seller for delivery of goods and determine how costs and risks are allocated between the contracting parties. They also help determine the value of imported goods for the purposes of calculating the amount of duty owed to Customs.  

Two common Incoterms are CIF (Cost, Insurance & Freight) and EXW (Ex-Works). They differ greatly in the obligations, risks, and costs they respectively allocate to the parties of a sales contract.
 

The Incoterm CIF dictates that carriage must be by sea. When using CIF, the seller is responsible for arranging the sea transportation and insurance, and these costs will be included in the value of the merchandise. If the importer prefers complete control over transportation modes and costs, including the option to not send by sea, then he or she would not want to use the term “CIF” in the sales contract with the seller. The costs of freight and insurance are usually included in the invoice value. These amounts are non-dutiable components and can be deducted from the price under CIF only if the amounts can be substantiated.
 

For example, suppose an importer purchases widgets for $99,000 from a seller using the CIF term in the sales contract. The seller provides the importer with an invoice that shows a total value of $100,000 for the merchandise and freight costs. Since the terms of sale are CIF and an amount of $1,000 for international freight is included in the value, the $1,000 may be deducted from the value declared to Customs if the importer can produce proof of the $1,000 payment for freight.  Then the value of the goods purchased, for the purpinteroses of determining the duty owed to Customs, would be $99,000.
 

EXW (“ex-works”) represents the minimum obligation for the seller and the maximum responsibility for the buyer in a sales contract. The seller need only make the goods available to the buyer at the seller’s facility. The buyer is responsible for loading the goods and arranging any transportation or clearance for export, unless the sales agreement states otherwise. The buyer bears all risks and responsibilities involved in taking the goods from the seller’s premises to the final destination, including foreign inland freight charges.  No freight, insurance, or duty are included in the value declared to Customs when using EXW.

Charges for foreign inland freight are charges for moving goods from the foreign factory to the place of loading. Foreign inland freight charges are dutiable unless the terms of sale are EXW or the charges incurred are necessary for preparing the international shipment.
 

For example, suppose an importer purchases fasteners for $10,000 from a seller in Shanghai on an EXW basis. The importer incurred a $500 expense to get the freight moved from the seller’s warehouse to the port of loading in Shanghai. Because the fasteners were purchased on an EXW basis, costs incurred for inland freight are the buyer’s responsibility and are not included in the transaction (dutiable) value. Therefore, the transaction value for the shipment will be $10,000. Had the contract for sale been CIF, the transaction value of the goods for the purpose of determining the duty owed to Customs would have been $10,500 because the seller pays for freight costs in a CIF sales contract, as a general rule, and such costs are added to the value of the merchandise. 

EXW is not used as frequently as FOB (“Free on Board”) because it is often difficult for the importer or buyer to arrange pick-up at the seller’s facility and transportation to the port.  FOB will be the subject of another article.           


About the author: 
Kathleen Lord-Black is an American-trained lawyer, with offices in Vancouver BC and in Blaine, Washington.  She is licensed in California and has assisted companies and individuals from around the globe establish successful businesses and obtain work authorization.   She is a member of the American Immigration Lawyers Association, American Chamber of Commerce, and Tri-Cities Chamber of Commerce, and is a frequent author and lecturer on the subject of US immigration and customs law.  She can be reached at info@immigration-etats-unis.com ; tel:  (604) 352-2006 (direct).   
 
 

Tuesday, February 23, 2016

Appeals and Review of Adverse Customs Decisions

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Appealing a Customs Ruling


Suppose you are importing Canadian goods into the U.S. but you come across adverse Customs decisions, such as:

·      Appraisal of your merchandise that is too high, leading to higher than necessary duties;
·      Erroneous classification of your merchandise, resulting in a higher duty rate;
·      Refusal by Customs to apply NAFTA or other preferential treatment to your merchandise;
·      Inappropriate charges or exactions of whatever character, including the accrual of interest;
·      Exclusion of your merchandise from entry or delivery; or a demand by CBP that you re-deliver your merchandise to CBP custody;
·      Refusal by Customs to liquidate (process), reliquidate, or modify an entry of your merchandise;
·      Custom’s refusal to pay your claim for drawback (refund of duties);
·      Civil and criminal penalties and forfeitures imposed on you for goods and actions Customs deems illegal.  


Filing a Protest

There are several forums and avenues for review and appeal in many of the above-described situations.  One of the most frequently-used  methods is to file a protest with the Port Director whose decision you disagree with.   A protest provides an opportunity for you, as the importer, to present evidence that will result in the refund of duties and other charges that were erroneously paid.  Protests often involve significant amounts of money, which importers are anxious to recover.  Since there are time limits placed on filing a protest, it is important for the party responsible for filing (usually the importer’s customs attorney or customs broker) to do so in a timely manner in order to recover the importer’s money.  Protests must be filed within 180 days of a decision, and requests for accelerated processing of the protest may also be filed.

Further Review of a Protest


Further Review means review of a Port Director's decision by Customs officers on a level higher than the district by Customs officers who did not participate directly in the decision that is the subject of the protest. A Further Review may challenge a Port Director's decision as being (a) inconsistent with a ruling of the Commissioner of Customs or with a decision made at any port with respect to the same or substantially similar merchandise, (b) questions of law or fact which have not been ruled upon by the Commissioner of Customs or by the Customs courts, (c) matters previously ruled upon by the Commissioner of Customs or by the Customs courts but facts are alleged or legal arguments presented which were not considered at the time of the original ruling, or (d) questions which the Headquarters Office, United States Customs Service, had previously refused to consider in the form of a request for internal advice. Any person whose protest has been denied, in whole or in part, may contest the denial by filing a civil action in the United States Court of International Trade within 180 days.

If a customs attorney prepared your protest and/or a request for further review of your protest, he or she may appear on your behalf in your appeal before the United States Court of International Trade (USCIT) if he or she is admitted to appear before that Court.  Although based in New York, the United States Court of International Trade is authorized to hear cases arising anywhere in the U.S.   The USCIT is also authorized to hold hearings in foreign countries.  Appeals of USCIT decisions are made to the U.S. Courts of Appeal for the Federal Circuit.

 About the author:  Kathleen Lord-Black is an American-trained lawyer, with offices in Vancouver BC and in Blaine, Washington.  She has assisted companies and individuals from around the globe establish successful businesses and obtain work authorization.   She is a member of the American Immigration Lawyers Association, American Chamber of Commerce, and Tri-Cities Chamber of Commerce, and is a frequent author and lecturer on the subject of US immigration and customs law.  She can be reached at info@immigration-etats-unis.com ; tel:  (604) 352-2006 (direct)  and (360) 329-2436. 


 





Monday, February 1, 2016

Obtaining Favourable Treatment under NAFTA


Are your products eligible under NAFTA?

Under the North American Free Trade Agreement (NAFTA), there are many advantages to importing Canadian goods into the U.S., such as reduced or eliminated  fees like the Merchandise Processing Fee (a duty paid to cover Customs administrative expenses), tariffs (a tax or duty to be paid on a particular class of imports), and Harbour Maintenance Fees (which are fees based on a percentage of the value of a shipment of merchandise).

In order to take advantage of the NAFTA’s reduced and eliminated fees for the importation of goods, the goods must be shown to have originated from the U.S., Canada or Mexico.  There are several ways to meet this country of origin requirement.   Using the techniques described below, it may be possible to obtain an advance ruling request from Customs (in which Customs will make a predetermination that your goods originate from Canada, for instance) as well as support a claim for drawback (wherein you would be reimbursed for most of the duties you may have already paid when importing your Canadian goods into the U.S.)

1.  The first way to show Canada is the country of origin is to obtain a NAFTA Certificate of Origin (CBP Form 434) to support a claim of origin.   In lieu of a certificate of origin for each item, importers can use a blanket certificate of origin covering identical goods.  The blanket certificate is valid for one year; and both blanket and individual certificates must be maintained for 5 years.

2.  A second way to show Canada is the country of origin for an article of merchandise is to calculate the Regional Value Content  (RVC).  This is an equation used to figure out if merchandise is “originating” (i.e., NAFTA eligible).  It is a calculated percentage of the  value of the product that represents its  North American content for NAFTA.   RVC must be calculated using either the Transaction Value method or the Net Cost method.  

What follows is a brief and rather technical discussion of these two methods of calculating Regional Value Content, which are often used when components from non-NAFTA countries make up part of an article of merchandise.

The first method to calculate Regional Value Content is the Transaction Value method.  Transaction Value is the price paid for the product.    To use this method of calculating RVC, you would need to add up the value of all the components that are non-originating but not including those components that would be considered de minimus (i.e., too small to figure in the calculation).   Subtract that value from the transaction value.  Take that number and divide it by the whole transaction value.  Multiply the result by 100 to get a percentage, i.e., your RVC percentage.  If RVC is at least 60% in most cases,  the product is probably eligible for NAFTA.   However, the RVC requirement is not always 60% and may vary depending on the type of merchandise.

Net Cost is the other way of calculating RVC.  The equation is the same as in the Transaction Value Method, but instead of using the values of the transaction between the buyer and the seller, you would use the overall value or net cost of all components.  The Net Cost Method is used if there is no transaction or if the transaction is between two related parties,  meaning that the transaction value is potentially skewed.  The equation is the same as with the Transaction Value method, but the bar for eligibility (50%) is slightly lower for Net Cost than it would be when using the Transaction Value method (60%).

3.  Substantial Transformation is a third way to show that Canada, for instance, is the country of origin for a product.   Substantial Transformation is production that results in an article having a new and different name, character, and use.  For instance, if raw tea and barley from China are combined in Canada to make a dessert pudding, this changes the essential character of the components into something else.  For purposes of import and export under NAFTA, it is a different product with a new country of origin (Canada, in this example).

4.  Tariff Shifts:  A Tariff Shift is similar to Substantial Transformation but, within the context of NAFTA, it deals with how the NAFTA rules treat the production of an article using specific products from specific countries, and whether the end product will be deemed to have originated from a NAFTA country.

Often claims for NAFTA treatment of goods is not made at the time of importation, and  a post-importation claim for refund of duties is subsequently made by the importer.  In this situation the claim must be made within one year of the date of importation by filing the certificate of origin or other suitable document with the port director of the port where the entry was made.







Tuesday, January 5, 2016

Dealing with Customs: The Value of Goods and the Duties Imposed


  Duties can potentially be imposed on any foreign goods that are imported into the U.S. This article will discuss how the value of merchandise is determined, and which rate of duty will be applied.
 
The terms "date of exportation" and "country of exportation" are terms of art whose definitions make a great deal of difference in determining the value of merchandise for the purpose of imposing duties on the merchandise. The date of exportation is the actual date that the merchandise leaves the country of exportation for the U.S. This date is also used when considering the currency conversion that takes place when duties are assessed. In order to arrive at the correct value for your merchandise, your customs lawyer, broker, or consultant will use the Federal Reserve Bank's quarterly rate. Care must be taken because the application of this definition of "date of exportation" (i.e., the actual date that the merchandise leaves the country of exportation for the U.S.) can be tricky, and because all duty calculations based upon an incorrect value will be wrong, leading to possible penalties.
 
For example, suppose a shipment of furniture is loaded onto a ship in British Columbia at a port near Vancouver on January 1st.  The vessel then goes to Shanghai China where more merchandise is loaded. On January 5th the vessel leaves for Los Angeles, California, to arrive on January 10th. The country of exportation is Canada, and the date of exportation is January 1st (even though the vessel left Shanghai for Los Angeles on January 5th) because January 1st is the date that the merchandise left the country of exportation (Canada) for the U.S. Accordingly, the value in Canadian dollars will probably have fluctuated between January 1st and January 10th. The value on January 1st will be used when determining the value in U.S. dollars. This can make a great deal of difference to an importer of goods into the U.S., who may want to time his/her shipments with possible currently fluctuations in mind.
 
Sometimes imported merchandise has been combined ("commingled") and the values and descriptions for the individual components have not been provided.   In the case of commingling, one rate of duty is applied to the entire shipment. Commingled merchandise is usually assessed at the highest duty rate applicable to any one of the components unless the quantity and value of each imported good can be easily determined within 30 days. For example, if a bag of tools contains a hammer that  has a 6% duty, and all the other items in the bag have lower duty rates, the 6% rate will apply to each bag, if the quantity and value of each separate item in the bag cannot be ascertained.
 
Regarding rates of duty, the applicable rates of duty for imported merchandise are generally those in effect on the date of formal entry into the U.S. or the date of withdrawal for consumption (if the goods are in storage). The only exception is for certain merchandise that is entered for immediate transportation. Then another port of entry will determine the value and rate of duty for the merchandise.
 
 
 
 About the author:  Kathleen Lord-Black is an American-trained lawyer, with offices in Vancouver BC and in Blaine, Washington.  She is licensed in California and has assisted companies and individuals from around the globe establish successful businesses and obtain work authorization.   She is a member of the American Immigration Lawyers Association, American Chamber of Commerce, and Tri-Cities Chamber of Commerce, and is a frequent author and lecturer on the subject of US immigration and customs law.  She can be reached at info@immigration-etats-unis.com ; tel:  (604) 352-2006 (direct)  and (360) 329-2436.  
 

Monday, November 9, 2015

The Trans-Pacific Partnership: A Boon for Small Business


The Trans-Pacific Partnership Will Benefit Small and
Medium-Sized Canadian Businesses

By Kathleen Lord-Black, U.S. Immigration Lawyer
 
Canadian Small and medium-sized businesses have many commercial advantages under NAFTA as well as under long-standing U.S. immigration laws, although few have the expertise to navigate these regulations.  The Trans-Pacific Partnership focuses in part on smaller businesses, creating access to information from government as well as shared sources, allowing smaller businesses to take full advantage of the trade opportunities that the new agreement will create.
 
The Trans-Pacific Partnership (TPP) is a proposed trade agreement among 12 Pacific Rim countries, including the United States and Canada that is awaiting ratification from member countries. The TPP is probably the most significant trade agreement since the North American Free Trade Act (NAFTA) came into effect in 1993, parts of which are specifically designed to benefit smaller businesses.  

In particular, the TPP's provisions have the potential to bolster Canadian exports by providing access to new markets, customers, and partnerships, resulting in stronger supply and production chains.  The TPP Agreement will make it easier and less costly for Canadian smaller businesses in a wide range of sectors to do business in the Asia-Pacific market by streamlining customs and origin procedures and by providing greater transparency in government regulations.
 
One chapter of the TPP specifically addresses the challenges small businesses face in global trade.   Small businesses have traditionally not benefited proportionally from trade liberalization agreements because prior trade agreements have lacked provisions that specially address the needs of smaller businesses and because smaller businesses are less likely than larger enterprises to establish overseas subsidiaries to overcome trade barriers. The TPP’s open access to trade information as well as its development of regional production and supply chains are designed to minimize confusion and to alleviate the pressure to develop subsidiaries overseas.
 
The small business chapter of the TPP describes how each member country will develop a website targeting small and medium-sized businesses. These websites will explain the basics of the TPP and how smaller companies can take advantage of it.  The TPP also provides for the establishment of an international committee that will meet regularly to assess how well the TPP is serving small businesses, and will consider ways in which assistance to small businesses can be improved under the TPP.
 
The technology industry, for instance, will benefit by the TPP’s provisions that ensure the free flow of data across borders. The TPP would also ban the practice many countries engage in of requiring foreign companies to build data centres or other facilities in their nations in order to access their markets.
 
The majority of Canadian businesses are small and medium-sized enterprises. They employ more than 7.5 million Canadians, which is about 70 percent of the private sector labour force. The TPP Agreement will support Canadian businesses by providing enhanced access to the growing Asia-Pacific region and a network of support in order to counterbalance the growing protectionism in Asia.
 
www.immigration-etats-unis.com
 tel: 604.352.2006
 
About the author:  Kathleen Lord-Black is an American-trained lawyer, with offices in Vancouver BC and in Blaine, Washington.  She is licensed in California and has assisted companies and individuals from around the globe establish successful businesses and obtain work authorization.   She is a member of the American Immigration Lawyers Association, American Chamber of Commerce, and Richmond Chambers of Commerce, and is a frequent author and lecturer on the subject of US immigration and customs law.  She can be reached at info@immigration-etats-unis.com ; tel:  (604) 352-2006 (direct)  and (360) 329-2436   
 

Thursday, October 1, 2015

How to Operate a U.S. Business Remotely

In general, a visa is required in order to live and work in the United States.  Many Canadians, for instance, own  businesses in the U.S. and operate them remotely from Canada, thus avoiding the need for a work visa.

Canadians are allowed to enter the U.S. as business visitors and conduct many business activities without the need for a visa for up to six months.  They can open a business; but to operate it, they will need a visa, even if they do not live in the U.S.  Operating a business, including supervising workers, is labour for which a work visa is required.

Without a visa, a Canadian business person cannot accept payment from a U.S. source.  This is problematic for the owners of gas stations and convenience stores, for instance, where several payments are taken directly from customers at time of sale.  In these cases, an investment visa (E-2) would be appropriate.

In another common scenario, a Canadian owner of rental property in the U.S. will hire a property manager to collect rents.  The property manager is an agent for the property owner.  An agent is a surrogate for the owner.  Thus, when the property manager accepts rents from the owner's tenants in the U.S., this is tantamount to the owner accepting money from a U.S. source in violation of U.S. visa laws that would require a work visa such as an E-2 visa.

Some guidelines on how to conduct business remotely without the need for a work visa are set out in a U.S. Bureau of Immigration Appeals deportation case entitled Matter of Hira.  This case involved a tailor from China who would go the U.S. as a business visitor to take orders for suits to be made in China.  All invoicing, accounts receivable, and labour were performed in China.  The tailor did not own or operate a business in the U.S., and only performed permissible business-visitor activities such as meeting with clients, entering into contracts, taking orders, and networking.  Thus, he was not required to obtain a work visa. 

The court in the Hira case considered Mr. Hira's clear intent to maintain his foreign residence, that the principal place of business and the actual place of the eventual accrual of profits was in China, that no funds accrued to him in the U.S., and the plainly temporary (even if long-continuing) business activities Mr. Hira was performing during each of his visits to the United States.

Small Canadian businesses, especially those with a product to sell, may want to establish a business presence in the U.S. that they will manage remotely from Canada until such time as they are financially able to successfully apply for a work visa.  They may rent office space, for instance, and hire local workers, even without first obtaining a work visa.  However, as in Matter of Hira, care must be taken not to risk deportation proceedings by exceeding the permissible business-visitor activities.

 tel: 604.352.2006

 

 About the author:  Kathleen Lord-Black is an American-trained lawyer, with offices in Vancouver BC and in Blaine, Washington.  She is licensed in California and has assisted companies and individuals from around the globe establish successful businesses and obtain work authorization.   She is a member of the American Immigration Lawyers Association, American Chamber of Commerce, and Richmond Chambers of Commerce, and is a frequent author and lecturer on the subject of US immigration and customs law.  She can be reached at info@immigration-etats-unis.com ; tel:  (604) 352-2006 (direct)  and (360) 329-2436

Monday, August 24, 2015

Food and Wine Imports into the U.S.

 
Tips for Importing Wine and Other Food Products into the U.S.

The first barrier in importing food products such as wine into the U.S. is the U.S. border.  The U.S. border is under the jurisdiction of U.S. Customs and Border Protection (CBP), which is charged with enforcing the rules and regulations of other U.S. federal agencies, as well as serving as the customs and border immigration arm of the U.S. Department of Homeland Security.

Along with CBP, some of the U.S. agencies involved in importing wine as a specific commodity are the Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB), the U.S. Department of Agriculture, and the Food and Drug Administration (FDA).  Also, protection of brands and trademarks is under the jurisdiction of the Department of Commerce, Patent and Trademark Office.

Some basic steps for Canadian wine importers are:

·      Register and report your export activities as required by the Canadian government (specifically,      Canada Revenue Agency and Canada Border Services Agency);
·      Have your trademark (brand) researched to see if a U.S. company is using it, and register your trademark to protect it;
·      Know the CBP, TTB, Dept. of Agriculture, and FDA requirements (e.g., permits, licenses, or other certification) for the importation of wine;
·      Determine whether there are any State regulations for the importation of wine;
·      Ensure that the wine is properly marked upon entry into the U.S. with the correct country of origin;
·      Be prepared to show by whom and where the wine was made from raw grapes;
·      Designate a U.S. agent and official correspondent for FDA communications;
·      Carefully select a distributor for the wine by considering the size of the distributor’s sales force, sales record, the location of its sales offices, its customer profile, facilities and equipment, etc.


Although there is much protectionism and many regulations when importing wine and food products into the U.S., the North American Free Trade Agreement (NAFTA) has greatly facilitated these imports by eliminating most tariffs on trade between Canada, Mexico and the United States, and by establishing an infrastructure for telecommunications and transportation among the three countries.  NAFTA also allows certain types of employees to move freely across borders, and has created a more unified business climate across the three NAFTA countries.
As with any cross-border enterprise, the first step is to work with a team of cross-border professionals in order to devise a customs and immigration strategy.  From this strategy, a business plan can be developed that will be tailored to the particular business entity and visa category the import business will eventually take as it ventures into the U.S. market.


tel:  604.352.2006