Just for fun I was flipping through my Harmonized Tariff Schedule (HTS) the other day. Yeah, you read correctly. JUST FOR FUN. You have a problem with that?
As I was saying, just for fun I was flipping through the HTS, bemoaning the fact there aren't any illustrations, when I stumbled into the basement of the book . . . that is to say chapter 98.
Have you ever read what is in there? You haven't? Well, just for fun, you should take the time to do so some day. Chapter 98 is chock full of opportunities to save your company some cash on its imports.
Avoiding Import Duties on Product Returns
Exporters, please don’t stop reading. The first opportunity within the HTS chapter 98 is designed for you!
While we might be loathe to admit it, a certain number of the goods we export are returned to us. When those goods are returned, they are subject to duties and user fees upon importation into the U.S. As long as we can prove those goods are of U.S. origin, classification 9801.00.10 exempts us from paying duties and user fees.
The formal description for 9801.00.10 is:
Products of the United States when returned after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.
(Ah, the sweet poetry of regulatory language!)
Classification 9801.00.10 allows for three general types of returns:
- 9801.00.1010 allows for articles previously exported with intent to re-import after temporary use abroad,
- 9801.00.1012 allows for articles returned temporarily for repair, alteration, processing or the like, the foregoing to be re-exported, and
- The remaining classifications under 9801.00.10 allow for other types of returned U.S. goods.
All three returns allow for the good to be in new, used or damaged condition. None of the classifications, however, allow for the goods to be advanced in value in any way. Such goods would be considered under heading 9802.
What's the Challenge?
As with any duty exemption program, the devil is in the details. In the case of 9801.00.10, only some of the details are included within the tariff. The notes to subchapter 9801 state:
1. The provisions in this subchapter (except subheadings 9801.00.70 and 9801.00.80) shall not apply to any article:
(a) Exported with benefit of drawback;
(b) Of a kind with respect to the importation of which an internal-revenue tax is imposed at the time such article is entered, unless such article was subject to an internal-revenue tax imposed upon production or importation at the time of its exportation from the United States and it shall be proved that such tax was paid before exportation and was not refunded; or
(c) Manufactured or produced in the United States in a customs bonded warehouse or under heading 9813.00.05 and exported under any provision of law.
While these are helpful details, they don't give much instruction on the practical application of this duty exemption. We must search the U.S. Customs regulations to learn more.
In 19 CFR §10.1 we find our instructions. It is within these regulations that we find the requirement that the importer must "reasonably satisfy" the U.S. Customs & Border Protection (CBP) Port Director that the goods are of U.S. origin.
The regulations describe three country-of-origin statements, any combination of which could be used to demonstrate proof of U.S. origin. These are:
- A declaration from the foreign shipper stating that the goods are of U.S. origin. The regulations suggest a format. This may be viewed by following the above link to the regulation. In lieu of this document, a declaration by the carrier that the goods were not unladen at destination is acceptable.
- A declaration from the importer, owner, consignee or agent attesting to the fact that the goods are of U.S. origin.
- A manufacturer's affidavit stating the goods are of U.S. origin.
The regulations give the CBP Port Director considerable latitude to accept these documents or to consider any other evidence or circumstances pertaining to the importation of returned U.S. goods. In practice, CBP has tended not to be reasonably satisfied until it has received all three of the above documents to demonstrate proof of U.S. origin in order to take advantage of the duty and fee exemptions under 9801.00.10.
What's the Problem?
Clearly an importer utilizing 9801.00.10 needs to ensure that it has sufficient documentary proof on file in the form of the three statements described above. Too frequently companies do not have this documentary evidence on file. This can be of particular concern when a well-intentioned customhouse broker files for the duty exemption without ensuring the appropriate documentation is in place.
I've also observed the inverse of this problem. Some importers fail to instruct their brokers to take advantage of the returned U.S. goods exemption, even when they have the documentary proof. As a result the importer pays duties and user fees when none are owed. Paying too much duty?
That's not something I recommend you do "just for fun."