An Overview of U.s. Import/export Regulations-part Ii, Imports

• Publication year: 2003
• Pages: 47

32 Colo.Law. 47 Colorado Lawyer 2003.

2003, August, Pg. 47. An Overview of U.S. Import/Export Regulations-Part II, Imports

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47

Vol. 32, No. 8, Pg. 47

The Colorado Lawyer
August 2003
Vol. 32, No. 8 [Page 47]

Specialty Law Columns
Business Law Newsletter
An Overview of U.S. Import/Export Regulations - Part II Imports
by Jo Anne Hagen

This column is sponsored by the CBA Business Law Section to apprise members of current information concerning substantive law. It focuses on business law topics for the Colorado practitioner, including, but not limited to, issues surrounding anti-trust, bankruptcy, business entities commercial law, corporate counsel, financial institutions franchising, nonprofit entities, securities law, and small business entities.

Column Editors:
David P. Steigerwald of Sparks Willson Borges Brandt & Johnson, P.C., Colorado Springs - (719) 475-0097, dpsteig@sparkswillson.com; Troy Keller, senior attorney at Qwest, (303) 992-6167, troy.keller@qwest.com

About The Author:
This month's article was written by Jo Anne Hagen, Windsor. She is a senior partner with Hagen & Melusky Law Firm and president of the Windsor Center for Business Compliance, a distance teaching program emphasizing import-export law and regulations. She can be reached at (970) 686-6618, joanne@h-mlegal.com.

This article provides an overview of U.S. import laws,
explores the rudiments of the Customs Modernization Act that amended the Tariff Act of 1930 and related regulations, and suggests ways to improve import procedures and
compliance.

You young gentlemen have entertained me royally, and in return I will give you a priceless secret. Tariffs! These are the politics of the future, and of the near future. Study them closely and make yourselves masters of them, and you will not regret your hospitality to me.
- Joseph Chamberlain, British Politician (April 1902)1

Companies import for a variety of commercial reasons, including the potential cost savings relative to domestic alternatives. Properly managed import programs provide sound legal bases for import activities and may permit the realization of the economic benefits of importing. Unfortunately, potential cost savings often are lost due to a failure to understand the complexities of import regulations and associated responsibilities.

This article is the second part of a two-part series on compliance with U.S. export and import laws. The first article appeared in this column in July 2003, and addressed U.S. export regulations.2 Export and import activities are two sides of the same coin. Exporters have the opportunity to be importers as a result of returned goods, warranty repairs, and similar business activities. Importers often are challenged with the need to export damaged or defective goods to their foreign suppliers. Although operationally, companies usually segregate these two divisions, understanding the compliance issues of both is necessary for an effective global trade program.

This article reviews U.S. import history, regulations, and the paired concepts of "informed compliance" and "shared responsibility." The article also emphasizes the three elements of importers' compliance responsibilities: classification, valuation, and entry of goods.

U.S. Customs Regulation Background and History

All articles imported from outside the United States are either subject to duty or exempted from duty, as provided by the applicable tariff statute. Duty is a tax levied on imports.3 Tariffs are the lists of articles on which duty is imposed.4 Although the terms frequently are used interchangeably, "duty" and "tariff" are not synonyms.5

Goods are considered imported into the United States when they are brought within the U.S. jurisdictional limits with the intent to unlade them.6 Simply bringing merchandise into a U.S. port does not constitute an importation where the parties intend that the merchandise be transshipped to another country. The precision of the definition of "import" is significant because it impacts business decisions regarding product valuation and applicable duty.7

Import regulations are premised on balancing competing concerns. On one hand, there is the necessity to protect U.S. domestic industries and interests by levying duties on imported goods and services. The alternate concern is protection of U.S. consumer interests in obtaining those same goods and services at the most advantageous prices. On a fiscal plane, the United States must balance U.S. revenues received from exporting with the revenues spent in acquiring those goods and services outside the United States. Attempting to strike this balance is perhaps one of the oldest preoccupations of government.

In the post-9/11 world, another element has been added to balance the need for regulation of imports to prevent terrorist activities and the efficiencies required to permit a free flow of trade between the United States and other nations. On January 24, 2003, the Department of Homeland Security was created.8 The U.S. Customs Service ("Customs Service" or "Customs") was transferred to the new department on March 1, 2003.9 Among other anti-terrorist activities, Customs is responsible for the "Container Security Initiative" to prevent global containerized cargo from being exploited by terrorists.10

Overview of U.S. Customs From 1789 to 1993

An overview of the history of U.S. customs duties should help explain import compliance. In 1789, in an effort to stave off bankruptcy, the fledgling U.S. government enacted tariff regulations and trade protection by imposing the Tariff Act of 1789.11 That Act imposed a general duty of 5 percent on all imported goods unless specifically excepted.12 The import of luxury articles and articles of industry would work to the detriment of manufacturing interests in the United States; thus, they carried higher ad valorem rates and specific duties.13

The Tariff Act of 1930 raised U.S. tariffs on more than 20,000 dutiable items to record levels and brought the U.S. tariff to the highest protective level in the history of the country.14 As a reaction to the Tariff Act of 1930, a number of foreign countries implemented retaliatory tariff acts. As a result, U.S. foreign trade suffered a sharp decline, thereby intensifying the Great Depression.15

Between 1934 and 1993, Congress passed or adopted a variety of legislation to address import issues. Among the more important enactments were those involving the authorization of: (1) bilateral agreements for reciprocal tariff reductions; (2) unilateral trade retaliation instruments; (3) presidential authority for trade preferences; and (4) export restraint agreements.16 In 1993, U.S. import laws were dramatically changed with the passage of the North American Free Trade Agreement ("NAFTA").17

Customs Modernization Act

The basis of current U.S. import law is contained in Title VI of the NAFTA Implementation Act, which became effective on December 8, 1993, and is more commonly known as the Customs Modernization Act ("Mod Act").18 The provisions of the Mod Act amended much of the Tariff Act of 1930 and related laws. The Mod Act is the primary law that importers must follow. The two original concepts to emerge from the Mod Act were "informed compliance" and "shared responsibility."19

Informed Compliance: The Mod Act is premised on the idea that to maximize voluntary compliance with customs laws and regulations, the trade community needs to be clearly and completely informed of its legal obligations. Accordingly the Mod Act imposes a greater obligation on the...