Chapter 9

Customs Clearance
Duty
Non-Tariff Barriers
Customs Clearing Process
Foreign Trade Zones
Customs Clearance
Duty
The tax an importer must pay to allow goods into a
country, based upon a tariff schedule.
Three criteria determine the tariff (the duty rate) to be
charged on an imported product:
Classification
Valuation
Country of Origin
Duty
Classification
Products are classified using a worldwide coding scheme
called the Harmonized Commodity Description and
Coding System, or Harmonized System.
Each product has an HS code; the HS is updated annually
by the World Customs Organization.
The HS Code uses up to 10 digits:
First six digits of a product code are the root digitsthey
are the same for all countries
Last four digits are country-specific
Duty
Harmonized System
System is divided into 21 sections logically determined by
type of product and material.
Sections are divided into one or more chapters (totaling 97
chapters).
For example, Chapter 64 is for footwear, gaiters and the
like, and subchapter 6402.19 is for other sport footwear.
Golf shoes for children are classified as 6402.19.0590
Duty
Rules of Classification
Importer and customs officers interpret classification according
to a number of rules of classification:
Classification of an unfinished product is that of a finished
product
The correct classification of a product made of different parts,
each classified differently, is the one that gives it its essential
character
If no classification is available, the correct classification is that
of a product most like it
Containers of products are not classified separately (camera
cases), unless they have a separate purpose, in which case they
are classified separately
Duty
Valuation
Countries of World Trade Organization base product value on
the value of the transaction (invoice).
The value of an import, though, can be increased by the value
of assists:
Assist is an item provided by the importer (customer) to the
exporter (seller) so that the exporter can manufacture the
goods: a mold or a die, for example
The value of an assist must be included in the valuation of the
imported goods (value of the assist divided by the number of
items made by the assist)
Duty
Valuation
If Customs suspect incorrect valuation on invoice, it can:
Use the Comparative Method: Value goods based on value of
identical or similar goods imported into the country
Use the Deductive Method: the price at which identical or
similar goods sold for within 90 days of importation
Use the Computed or Reconstructed Value Method: the value
of goods determined by computing manufacturing costs of
goods plus usual profit and expense
Use the Method of Last Resort: Customs officials
determine the value in some arbitrary fashion
Duty
Country of Origin
Is the country in which the goods were made. It is
determined through the Rules of Origin of Customs:
Substantial Transformation: Is the country where the
most substantial transformation of a product takes place
Change in HS classification: Is the country where the last
change in Harmonized System classification occurred.
Often it is difficult to determine country of
origin of a complex product.
Duty
Tariffs
An importing country usually manages its imports under a tariff
system that is dubbed N-column tariff system,'' with N, the
number of columns, corresponding to the number of different
classes of countries that the importing country considers.
Tariff Schedule
A document listing all the possible Harmonized System
classification categories, as well as their associated tariff rates
for the different classes of countries.
Duty
Tariffs
Tariffs are generally calculated ad valorem or as a percentage
tax on the value of the goods imported (see Springs for
watches, H.S. 9114.10.4000 on the next slide).
Other methods exist:
A fixed amount per unit imported (see Plates and Bridges,
H.S. 9114.40.2000)
A fixed amount per unit in addition to a percentage of the
value of the goods imported; such a tariff is called a compound
duty rate (see Dials not exceeding 50mm in width, H.S.
9114.30.8000)
Some other method: Switzerland calculates duty by using the
weight of the product

Non-Tariff Barriers
Pre-shipment inspections
Country requires that all imports be inspected by an
independent inspection firm at the port of departure:
Want an expert opinion on the classification and the value of
the products that are about to enter its territory
To fight corruption in its own ports of entry. Independent
party to certify classification, value and country of origin
Want to estimate the currency requirements it will face in
the short term, and uses the value of the shipments subject
to PSI to forecast its foreign currency needs
Customs Clearing Process
General Process
May start with an import license that the importer
has to acquire
Process usually starts when importer files an entry.
The importer has to include documents with the entry:
Invoice
Certificate of inspection (when required)
Certificate of insurance
Certificate of origin
In most developed countries, importer is responsible for:
Classifying goods according to tariff schedule of importing
country
Determining amount of duty
Customs Clearing Process
Once the goods are in & the importer has paid the duty that was
due on those goods, the goods are said to have cleared customs;
they were released by the customs authorities.
Once an entry has been successfully reviewed by customs
authorities and the duty has been paid, the entry is said to be
liquidated. No further processing is required.
If an importer requests customs to reconsider the classification,
valuation, or country of origin, the importer is said to file a
protest.
Protest is generally filed when importer feels that the
amount of duty paid is excessive, or when a good is not
allowed in because a quota has been met.
Customs Clearing Process
Required Markings
Products imported will generally require a made in *country+
or product of *country+ marking to inform the customer of the
origins of the product.
Label should be printed or affixed on the product itself or its
packaging.
Merchandise Visas
Document provided by the government of an exporting country
for a product that is subject to a quota in the US.
It grants the exporter the right to export such goods.

Customs Clearing Process
Duty Drawbacks
Customs Service will refund a percentage (US = 99 %) of the
duty paid by an importer in one of three cases:
For merchandise that is rejected by the importer as non-
conforming to the original purchase order
For imported products that are re-exported unused
For imported parts that are used without substantial
transformation