Shipping Solutions Newsletter

By John Goodrich email | bio

Just when you thought you had your products classified properly, they go and change the rules. If it weren’t for the fact that I am by nature a pessimist, the process would be discouraging. Instead I view this change as one more penance to be endured by the already overburdened international businessperson. (Sigh.)

You are likely aware that the United States is a contracting member to the international classification standard known as the Harmonized Convention. The World Customs Organization (WCO) maintains the convention and is responsible for keeping it current so that it reflects technical developments and changes in trade patterns. Their task is to revise the convention on a four to six year cycle. The next revision will take effect in January, 2007, and will be the third major change to the convention since its implementation in 1988.

The U.S. versions of the Harmonized Convention undergo minor changes each year. The U.S. International Trade Commission (ITC) regularly updates the import Harmonized Tariff System Annotated (HTSA) at least twice each year. Generally, modest changes are implemented to the nomenclature of the tariff and to duty rates each January while technical adjustment to free trade agreements and duty preference programs occur each spring.

Likewise, the Census Bureau releases a current edition of the export Schedule B system each January. An astute importer or exporter tracks these changes to ensure they are using the most current edition of the HTS or the Schedule B.

What is so unique about the 2007 changes to the international convention? The last major revisions to the tariff took effect in 2002 and focused predominantly on the dramatic changes that had occurred in technology. This resulted in many classifications changing but with a limited focus on chapters 84, 85 and 90. The 2007 changes are much more wide ranging and, as a result, will affect many more importers and exporters.

Consider the following factoids:

The Harmonized System Convention will undergo 354 amendments to notes and classifications.
The 2007 amendments will affect 83 chapters.
More than 240 headings will undergo changes.
More than 1600 eight-digit HTSA classifications will change.
Almost 10% of the eight-digit HTSA classifications will change.
All of the free trade agreement rules will need to be amended to reflect the changes in classification.

Will this have an impact upon your company? Most likely the affect upon your company will be limited to reacting to the changing numbers. The ITC has strived to make any changes “revenue neutral.” That is to say, your duty rate should not change. While this might be true at a macro level, it is possible your company’s product could see a change in duty rate.

While the initial impact upon your company will be the administrative burden of updating your classification databases, don’t forget your legal obligation to properly classify your imported and exported products. Fines and penalties for incorrect classifications are levied upon the importer and the exporter and rarely upon the broker or forwarder.

If you do not have the expertise within your firm to determine proper classifications you will need to develop or hire it. International Business Training (IBT) offers excellent training in this area. The ITC has published an excellent document on its website detailing the changes to take effect in 2007. Within this report you will find the list of the eight-digit classifications, which will be changing.

Importers, in particular, should review this report for the potential duty affect upon their firms. All importers and exporters should take measures to ensure the transition between the old edition and the new revisions is a smooth one. One measure would be to provide your brokers and forwarders with a classification database showing the old classifications and the revised classifications.

While the changes are intended to take effect on January 1, 2007, the technical, administrative and legislative processes built into the law might cause a delay in implementation. The 2002 changes, for example, did not take effect until January 10.

Of course, as a pessimist, I won’t be surprised if the January 1 deadline is missed. That would be par for the course. (Sigh.)

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CAFTA-DR: How to Declare that a Good is Originating

By Sue Senger email | bio

When fully implemented, the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) will provide duty-free trade on most goods traded between the United States, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. My last article explained how to determine when your product becomes duty free. This article explains how to declare a good as originating.

The importer is responsible for claiming preferential treatment under CAFTA-DR. The exact manner that such a claim will be made will be determined by the individual signatory countries. This Agreement does not require that the importer provide a certification in support of the claim of preference unless requested by the customs authority. The importer should work with the U.S. exporter to ensure that a U.S. good meets the relevant rule of origin under the CAFTA-DR prior to making a claim.

Claim for Preferential Tariff Treatment

The importer may make a claim for preferential tariff treatment based on either:

A written or electronic certification by the importer, exporter, or producer. (Electronic certification is to be available for products entering the Central American countries and the Dominican Republic no later than three years after the date of entry into force of this Agreement.)
The importer's knowledge that the good is originating, including reasonable reliance on information in the importer's possession that the good is originating. (The Agreement states that the Central American countries and the Dominican Republic shall implement this subparagraph no later than three years after the date of entry into force of this Agreement.)

Demonstrating Eligibility for Preferential Tariff Treatment

In general, a product's eligibility for preferential tariff treatment may be demonstrated in a variety of ways provided it is in written or electronic form. An example would be a statement on company letterhead, a statement on a commercial invoice, or a certification. While no official form is required in order to demonstrate eligibility for preferential tariff treatment under the CAFTA-DR, there is a required list of elements that need to be included.

A certification should include the following information:

The name of the certifying person, including, as necessary, contact or other identifying information;
Tariff classification under the Harmonized System and the description of the good;
Information demonstrating that the good is originating;
Date of the certification; and
In the case of blanket period certification, the time period over which the certification is applicable.

It is the responsibility of the importer to claim preferential treatment for a given shipment at the time that the good is cleared through the Customs authority.

Despite the fact that the ultimate responsibility for claiming preferential treatment lies with the importer, information needed to support the claim for preferential treatment may need to be provided by the producer. The certification that the goods are originating may be produced by the exporter, importer or producer of the goods.

If someone other than the producer (i.e., the exporter or importer) issues the certification, it must be based upon either:

Reasonable reliance on a written or electronic certification that the good is originating issued by the producer, or
The issuer's knowledge that the good is originating, which may include intimate knowledge of the product, its manufacture, and its components. In other words, the importer may be heavily dependent upon the assistance and cooperation of U.S. suppliers in producing accurate and well-documented claims for preferential treatment.

Go to the U.S. government’s Free Trade Agreement website to find a sample CAFTA-DR Certificate of Origin for exports to El Salvador, Honduras, and Nicaragua. You’ll also find an unofficial English translation of the CAFTA-DR Certificate instructions at the site.

The Rules of Origin for CAFTA-DR were largely modeled upon the North American Free Trade Agreement (NAFTA) and the U.S.-Chile Free Trade Agreement. There are however some important differences that require the close attention of the U.S. exporter. My next article will address these rules of origin.

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Challenge

Beutlich Parmaceuticals wanted to replace their typewriter with an easier, more efficient way to complete their export documents as well as perform compliance screening required by U.S. export regulations.

Solution

Beutlich Pharmaceuticals purchasing Shipping Solutions Professional in 2002. Anita Pickens, Beutlich's international shipper, saves more than two hours on the paperwork for each international shipment. She also uses the Shipping Solutions Professional Export Compliance Module to make sure they're not shipping to anyone on a government restricted party list.

Company

Beutlich Pharmaceuticals, Waukegan, Illinois.

More Information

Read the entire Beutlich Pharmaceuticals Case Study at the Shipping Solutions website.

Share Your Story

If you'd like to share how Shipping Solutions has helped your company save time and money with the export documentation and compliance process, please let us know. We'll be happy to share your story with the Shipping Solutions Newsletter readers.

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