International Trade Basics

1
International Trade Basics

• FOCUS Business Solutions, Inc.
• Offshore Manufacturing Summit
• San Carlos, MX
• October 19-20, 2006

2
Topics

• Overview of importing process
• Customs implications
• Assigning task of customs compliance
• Moving raw materials and goods
• Southbound
• Northbound
• Customs Border Protection (CBP)
• Harmonized tariff classification
• NAFTA
• ADWs
• Country of origin marking
• Communications
• Fixing mistakes

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Executive Level View of an Importation

• Foreign purchase
• Purchase order issued
• Goods are shipped
• Goods are received
• Payment made to foreign supplier
• Finished goods shipped to customer

Departments involved Engineering, purchasing,
logistics, shipping/receiving, accounts payable
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Customs Implications

• Foreign purchase
• Trade program requirements must be met
• Purchase order issued
• Dutiable assists must be declared
• Goods are shipped
• Freight charges can reduce duties owed
• Importer must hire a customshouse broker
• Goods are received
• Overages/shortages
• Payment made to foreign supplier
• Amount paid or payable
• Finished goods shipped to customers
• Duty Drawback

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Assigning the Task of Customs Compliance

• Knowledge is required for other disciplines
• Engineering
• Purchasing
• Logistics
• Accounting/Finance
• Knowledge required for Customs compliance
• Experience, Experience, Experience
• Customs laws and regulations
• Harmonized tariff classification
• Trade programs

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Moving Raw Materials and Goods

• Southbound to Mexico
• Raw materials are consolidated by The Offshore
  Group
• Offshore prepares necessary paperwork to submit
  to Mexican customs broker
• Offshore in conjunction with Mexican broker
  assign harmonized tariff classifications
• Mexican broker prepares the Mexican entry (Import
  Pedimento and Export Pedimento) and submits to
  Mexican Customs

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Moving Raw Materials and Goods

• Southbound to Mexico
• Duty Implications
• Definitive Importations 10 -15 duty rate
• Temporary Importation
• PROSEC rate 0-5
• NAFTA rate Usually duty free (0)
• Offshore can advise PROSEC status
• To obtain NAFTA rate, customer must obtain/supply
  NAFTA certificates to Offshore
• Importer of record into Mexico
• Maquilas Tetakawi
• Manufacturas Zapaliname

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Moving Raw Materials and Goods

• Importer of Record Northbound from Mexico
• As Importer of Record, responsibilities include
• Exercise of reasonable care
• Determination of harmonized tariff classification
  number
• Duties, taxes, fines penalties
• Selection of U.S. Customsbroker
• Transmission of packing slip data to Offshore
• Prepare Assembly Worksheet Descriptions (ADWs)

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Moving Raw Materials and Goods

• Importer of Record Northbound from Mexico
  (contd)
• As Importer of Record, responsibilities include
• Obtain NAFTA certificates for raw materials
  moving southbound
• Qualify finished goods for NAFTA treatment
• Respond to requests from CBP
• Participate in Reconciliation program
• Compliance with all other CBP laws and
  regulations
• CBP is enforcing agency for over 60 other
  governmental agencies

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Customs Border Protection (CBP)

• U.S. Customs and Border Protections top priority
  is to keep terrorists and their weapons from
  entering the United States. While welcoming all
  legitimate travelers and trade, CBP officers and
  agents enforce all applicable U.S. laws. CBP
  prevents narcotics, agricultural pests and
  smuggled goods from entering the country and also
  identifies and arrests those with outstanding
  criminal warrants. On a typical day last year,
  CBP officers welcomed 1.2 million people at the
  nations 314 land, air and seaports while denying
  entry to more than 3,000 inadmissible visitors.

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Harmonized Tariff Classification

• One of the most critical and complex components
  of an import transaction
• Knowledge needed to classify properly
• Fit, form, function, material, and General Rules
  of Interpretation
• Determines duty rate
• Critical for NAFTA determination and support
• CBP offers a Binding Ruling program
• CBP issues definitive opinion on tariff
  classification

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Harmonized Tariff Schedule Classification
Valves for Aircraft Engines
Other Parts of Aircraft
8803.30.0030
FREE
Hydraulic Valve
8481.20.0040
2
Check Valve
8481.30.2090
5
Brake Caliper Pin

Other Non-Threaded Articles
7318.29.0000
2.8
Other Articles of Metal
7326.90.8587
2.9
Brakes and Parts Thereof
8708.39.5050
2.5
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NAFTA

• Important to understand NAFTA rules of origin and
  how they impact
• NAFTA qualification process
• Sourcing decisions
• Tariff shift vs. Regional Value Content (RVC)
  percentage
• Importance of correct HTS numbers
• NAFTA Audits

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NAFTA vs. Unconditionally Duty Free HTS Numbers

• Unconditionally duty free Items are free of duty
  regardless of NAFTA or other trade agreements
• Merchandise Processing Fee (MPF) is assessed on
  shipments from Canada or Mexico, unless NAFTA is
  claimed
• MPF amount .21 of Entered Value
• MPF minimum 25.00 per Entry
• MPF maximum 485.00 per Entry
• Refunds for duty and MPF can be obtained one year
  from date of import

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Assembly Description Worksheets (ADWs)

• ADWs are similar to production Bills of Material
• Important to keep ADWs updated to reflect
  changes in values
• Changes could alter NAFTA declaration
• ADWs should reflect all costs associated with
  raw materials and production of finished good
• ADWs should be reviewed on annual basis

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Country of Origin Marking

• Every article imported into the USA must be
  marked to indicate its country of origin, unless
  excepted by law
• If excepted by law, the outermost container must
  be marked to indicate the country of origin of
  the contents
• NAFTA marking rules of origin apply to articles
  produced in Mexico or Canada and shipped to the
  USA
• With regards to articles to be further processed
  in the USA, the Federal Trade Commission governs
  use of Made in the U.S.A.

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Advance Notices and Communications

• Important to notify Offshore, customs broker, and
  NAFTA provider of new part production
• Offshore can advise dutiable status on
  importation of raw materials into Mexico
• NAFTA provider can advise of NAFTA eligibility
• Both of above require time and usually cant be
  done on moments notice
• Duties can quickly accrue before its realized
  that a part is crossing the border without
  benefit of NAFTA

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Advance Notices and Communications

• Communicate, Communicate, Communicate
• Offshore
• Broker
• NAFTA/Customs provider
• Use caution in communicating with CBP
• Understand purpose of any request for information
• Understand impact of duty on prior shipments

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Fixing Mistakes

• Fixing mistakes require amendment to Customs
  entry
• Be aware of time constraints
• Method of amendment depends on liquidation status
  of entry
• SIL/PEA Prior to liquidation
• Protests 180 days from liquidation
• 520(d) 1 year from date of importation
• Prior Disclosure Anytime prior to commencement
  of formal investigation

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Summary

• As importer of record company is subject to legal
  requirements
• Classification of materials and finished Goods
  should be as accurate as possible
• NAFTA can be complex and has potential to expose
  company to penalty actions
• Keep ADWs updated
• Communicate with appropriate parties
• Fix mistakes when discovered
• Make conscious decision who should handle Customs
  responsibilities

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Additional Information

• Contact
• Steve Haywood [phone] ext. 224
• FOCUS Business Solutions, Inc.
• 2674 W. Jefferson Ave.
• Suite 100
• Trenton, MI 48183
• shaywood_at_focus-solutions.net
• Also http//www.cbp.gov/