One of the big fears that people have of getting started in import/export is the idea that clearing customs is complicated and burdensome. Yet in ports of entry across the country, thousands of shipments sail through customs with little or no problem, and minimal or no expense. This situation is bound to improve even further, as tariff barriers come down.
The United States, Canada and Mexico are in the process of forming a free trade zone, where import duties (or tariffs) will eventually be completely eliminated for transactions within the zone. The European Economic Union is well on the way, and other zones are being formed in other regions of the world. Eventually, we can foresee the joining of zones into larger free trade zones, and finally into global free trade.
How long will this take? Who knows - but we already have seen enormous change totally unthinkable a scarce few years ago. It could take several decades before global free trade is a reality, or we may see it in one.
We don't have to wait. Those companies that build their networks and business relationships now will be in the best position to take advantage of the future. And will be making deals, and clearing shipments through customs, and making money today.
Every shipment of goods into the United States require clearance through customs. This can either be a formal or an informal entry. If you have returned to the country after a trip and the customs agent asked if you had anything to declare, that was one kind of informal entry. If you had items to declare and the value was under a certain ceiling (depending on such things as how long you've been out of the country), an on-the-spot determination of value and assessment of duty could have been done, and you'd be on your way again in a matter of minutes.
As a tourist returning home, you are allowed a certain amount of exemption for your personal use. Note that this does NOT apply to items purchased for resale or business use. You must declare all items for business, but if all you are bringing back are a few samples or a small quantity, you can still go through just an informal entry.
Most trade involves a formal entry. The cutoff point as of this writing is $1,250. More value than that, and a formal entry is normally required. Note that there are exceptions to that dollar figure. Some items reach the formal level at only $250 in value. Among them are most articles of apparel, toys, games, sports equipment and handbags, among others. Custom-tailored suits, not accompanied by the owner, are formal entry items regardless of value.
Formal entry involves a two-part process, the first being filing of forms and examination by Customs for determination of import restrictions and duty, after which the goods are released on bond. The second stage involves payment of duties and filing of forms for statistical use. Everything is documented formally, both for ensuring the honesty of the procedure and for collecting import/export statistical data for the government.
Your best ally - and an essential partner in this process - is your customs broker. I will not recommend mine (for purposes of impartiality), nor any particular one. You must make contact with several and talk to them. Find one or two that you feel comfortable talking to, that is willing to help walk you through the whole thing. Don't be afraid to let on that you are a newcomer to the import/export game. Find someone you can work with, and let them help you.
When your goods arrive at a port of entry, the customs broker will ensure that the goods are properly receipted for and notify you that they have arrived. You'll then have up to five days to provide the necessary documents (which your broker can prepare) pay the duty, and take possession of the merchandise. If you take longer than the time allowed, you will be charged storage fees, which can be quite high.
Documents required are:
a. Entry Manifest, Customs Form 7533 for normal entries, or Form 3461 for Application and Special Permit for Immediate Delivery.
b. Evidence of the right to make entry (proof of ownership or agency).
c. Commercial invoice. If none available, a pro forma invoice may be prepared.
d. Packing lists and other documents as necessary.
After the goods are released, you'll have ten days to file an entry summary and pay any duties assessed (the goods could have been released on the strength of the bond). This requires the entry package of documents above, which will be returned to the importer on release of the goods, as well as an Entry Summary (Customs Form 7501) and payment of duty.
Goods arriving must either have the duty paid immediately, or have a bond posted to ensure the payment. Your customs broker is bonded (or should be) and may cover this requirement for you. Some will simply assist you in obtaining your own bond.
Two types of bonds are generally issued, either an annual or a one-
time bond. The annual runs around $400 (a bond is insurance, and like insurance policies the price can vary widely) for about $50,000 coverage. The one-time bond is about a tenth of that. If you may be importing more than ten shipments a year, then by all means an annual will be cheaper.
If the items you are bringing in are perishable, or are coming from Canada or Mexico, it is possible to have an immediate release. The goods will be checked and the shipment released as soon as it arrives. You must arrange for this and fill out the paperwork BEFORE the shipment arrives.
All commercial imports require an invoice, though for very small value shipments (under $200) you can request an immediate release under Section 231.
The U.S. Customs Service will inspect your shipment. They are charged with enforcing regulations and laws from many different agencies, from the Food and Drug Administration to the Patent and Trademark Office and 40 or so others. They will be looking for items violating these rules, and have the power to seize shipments that are illegal.
One of the main things they are looking for is the Country of Origin markings. Every item (with few exceptions) must clearly state at a glance where it is manufactured. The markings must be evident to the end user of the product.
The Customs Agent will also make an appraisal as to what the value of the shipment is. In most cases, that is what the duty owed will be based on, called an Ad Valorum (on value) duty.
Part of the appraisal process is an attempt to classify the products into the Harmonized Tariff Schedule system. This is a rather complex series of classifications on which the whole tariff system is based. The duty charged may vary widely depending on how the items are classified. For instance, a table cigarette lighter may be assessed 4.8% duty, while a pocket lighter may be charged 10%. The schedules are further broken down by country of origin, so that imports of the identical items from Myanmar (Burma) and from Thailand may be charged vastly different duties. Generally, those countries with whom the U.S. has less than friendly relations suffer from much higher tariff rates.
If you import a bird cage, it may be classified as one item. If it has a music box attached, it may fall into another category, and if it has valuable ornamentation (such as gold-plated door hinges and latch) it may be yet another.
The Customs agent will make a determination of value, based on his or her best estimate of what the product is sold for generally in the country of origin, plus shipping materials. The price you actually paid may be part of the consideration, but not necessarily the most important.
This actually works to the favor of the small importer. If a large company buys huge quantities of an item, the price is normally much better than we can negotiate for small quantities. The lower price may be what the Customs determines is the normal price, rather than the higher price we paid.
Your customs broker is your advocate and your ally in this process. Find and use a good one. They are familiar with the tariff schedules, and can help ensure that you pay no more than need be. They often will argue your case for you if they believe you are being charged more duty than you should be, or if your shipment is denied entry unjustly.
You should be in frequent contact with your broker, for they can provide valuable advice even if you are not at the stage of receiving a shipment. You can contact them by fax or telephone - even from overseas - BEFORE you make a purchase, to get an idea of what the duty is likely to be, and if there are any potential problems you should be aware of.
You can delay the payment of duty by having the goods placed in a bonded Customs warehouse. As long as the items remain in the warehouse, there is no duty collected. Items may remain in the warehouse for up to five years. This may prove necessary in the event goods arrive but a buyer is not lined up. Rather than paying duty and losing the capital, you can find the buyer first before having the goods released. If the goods are not entered (all the forms filed properly) within one year, they may be sold at auction or destroyed. All storage charges, expense of sale, taxes and duties and other fees are owed by the importer, but may be satisfied by the auction.
Fees for the services of a customs broker range generally from $20 to $50 per thousand dollars worth of merchandise.
Some importers, especially smaller firms, use the mail exclusively for their importing. Items coming through the mail still go through a customs procedure, but up to the formal entry limit of $1250 it is a very streamlined and easy process.
The parcel must have a Customs declaration securely attached. Commercial packages must have a commercial invoice enclosed in the package. The package must also contain a Universal Postal Union form C1, or the endorsement that the package may be opened for Customs inspection before delivery.
Customs may open the package for inspection, or may prepare an entry document based on the declaration. The letter carrier then delivers the package after payment of duties charged, collecting an additional $5 Customs processing fee. For items over $1,250, the package may not be released until the importer files a formal entry at the nearest Customs port.
For reprint and licensing requests for this article, CLICK HERE.