At the request of a loyal reader, here is a reprint of an article first published in June 2003 that has been updated to reflect changes in the current U.S. import-export regulations.
Congratulations! You sold a piece of your equipment and machinery to a customer in the United Kingdom who also purchased an extended warranty and service agreement from your firm. Before you shipped your equipment to this new customer, of course, you verified that the goods did not require an export license and that the customer was not listed as a restricted end-user by any U.S. government agency.
Now, some months later, the equipment that you sold to your British customer has broken down, and they wish to return the item for repair. They have asked you for guidance on how to proceed. It is urgent. You want to be sure that the return process is as inexpensive as possible and without any delays in shipping, handling and repair.
Here are some steps that will help you make arrangements that will ease the flow of paperwork and goods between you and your customer.
Step 1: Sending an Item to the U.S. for Repair
Your British customer (or a customer in any country) should first check with his or her own customs authority. Every country's customs authority has a different procedure and documentation for repairs, which your customer must research and then follow.
Some countries require that the goods being returned be registered with the customs authority prior to sending it to the U.S. for repair. This proves that the goods have been legally imported and duty paid on the goods and that duty should not be assessed on the entire item when returned. The customs authority in the buyer’s country will likely assess duty on the declared value of the repair; however, it can also be possible that the country’s laws require that duty be paid on the full value of the goods. As a result, the customer may ask you to declare a value of $1, $5, or $100; if that is the value, you have my blessing, but if the value on the good is actually $3,000 or $10,000, then that is the value to declare.
Step 2: Contact Your Customs Broker
Contact your broker and discuss the steps you and your customer should take to import the goods for repair. This will lay the groundwork for a smooth return to your customer.
It is important to establish a procedure with your customs house broker; they will be able to advise you whether it is beneficial to import the goods under a Temporary Importation under Bond (TIB) if the goods were advanced in value since exportation.
The broker may have specific instructions for you and your customer to follow in preparing the documentation on the item being sent to you. Remember, when you are named on the international bill of lading as the importer or consignee—even for goods returned for repair—you become an importer subject to U.S. Customs rules, regulations and laws.
Step 3: Seller to Prepare the Commercial Documents for Import
If the goods have not been advanced in value or improved in condition while overseas, you or your customs house broker will likely be able to enter the goods into the U.S. duty free following these steps:
- Issue a Materials Return Authorization (MRA) that instructs the British customer to prepare a commercial invoice (see sample) indicating “the goods are of U.S. origin, being returned for repair, have not been advanced in value or improved in condition,” along with two U.S. Harmonized Tariff Schedule (HTS) Numbers. You will find the HTS numbers at the United States International Trade Commission's website, which allows you to search by keyword. The second classification, 9801.10.0085, identifies the traffic monitoring/signaling equipment of U.S. origin. An example is noted here:
Traffic Monitoring/Signaling Equipment being returned for repair.
Made in the U.S.A., not advanced in value or improved in condition.
U.S. Harmonized Tariff Schedule Number: 8530.10.0000 and 9801.10.0085.
- Instruct the customer to complete the "Shipper’s Declaration" per U.S. Customs Regulations 19 CFR §10.1(a)(1). See below:
- As the importer of the returned goods, you are to submit either the Importer’s Declaration 19 CFR §10.1(a)(2) or the Manufacturer’s Affidavit 19 CFR §10.1(b) to your Customs Broker as a part of the customs clearance process to avoid payment of duty.
Step 4: The Goods Are Prepared; What’s Next?
You have completed the repair on the equipment. Now its time to prepare the documentation that will move the shipment from your facility to the carrier or the forwarder’s consolidation facility. There are documents that you will typically prepare such as the commercial invoice, the packing list, certificates of origin and, possibly, the Electronic Export Information (EEI).
- Commercial Invoice: The commercial invoice is an important document.
First, the value of a repair should be listed on the commercial invoice. If the repair is a sale, then the invoice should reflect the transaction value. If it is not a sale, for example the repair is under warranty, then your company can list the value at its cost or wholesale value, fair market value, or the company's cost of production if it performed the repair. However, customs in the buyer’s country may still be required to collect duty or taxes on the value of the repair even with this notation on the commercial invoice or on the original value of the merchandise. See sample.
Second, write the following sentence or a variation on the commercial invoice: "No charge: Warranty Repair Value for Customs purposes only."
- Automated Export System (AES) Electronic Export Information (EEI):
The EEI is submitted as needed through AES. If you or the customer hired a freight forwarder, they may complete the AES record on your behalf. The freight forwarder, in conjunction with the U.S. Customs Broker, will close the TIB if it was issued.
When a good is returned by a foreign buyer to the U.S. manufacturer for repairs, fixed and then reexported, the U.S. firm must follow the Foreign Trade Regulations to determine if an EEI is required. If an EEI is required, then follow these guidelines:
Congratulations! You succeeded in receiving, repairing and shipping the item back to your customer in record time. You have successfully avoided pitfalls associated with warranty repairs and returned those goods in a timely manner to your customer!
For More Information:
- Trade Information Center's website at www.export.gov or call 1 (800) USA-TRADE.
- To find your local U.S. Customs and Border Protection (CBP) office and obtain information on import and export regulations, visit the CBP website.
- The Census Bureau provides a tool for finding Schedule B Numbers.
- AES information can be found at the AESDirect website and the Census Bureau's website.
- Harmonized Tariff Schedule Numbers can be found at the U.S. International Trade Commission's website.