U.S. Exporters Should Seek the Assistance of Customs and Border Protection in Resolving Disparate Tariff Classification and Customs Valuation Treatment in Foreign Markets

By Melissa Miller Proctor

Last summer, U.S. Customs and Border Protection (“CBP”) published a General Notice in the Federal Register announcing its process for allowing U.S. exporters to request CBP’s assistance in resolving disputes with foreign government authorities involving tariff classification and customs valuation issues. See 80 Fed. Reg. 34924. U.S. companies from time to time receive pushback from customers in foreign markets on the classifications and values that are being used for their products. Exporters are encouraged to seek assistance from CBP when they encounter differing interpretations on classification and valuation in foreign countries, as they can lead to the disparate treatment of their goods resulting in additional costs and potential liability for foreign customers. In addition, U.S. exporters may experience a competitive disadvantage due to these varying interpretations and costly delays in the clearance of their goods in the countries of importation. The following describes the mechanics of CBP’s new process, as well as provides tips for preparing and submitting effective requests to CBP.

By way of background, when imported goods are entered into the United States, they require a ten-digit tariff classification code under the Harmonized Tariff Schedule of the United States (“HTSUS”). The HTSUS provides detailed commodity descriptions of more than 5,000 items in various chapters, sections and headings. The assigned classification codes are what drive the duty rates that are applied to the imported goods at the time of entry. The HTSUS reflects the classification rules established under the international Harmonized Commodity Description Coding System (or “Harmonized System”) developed by the World Customs Organization (“WCO”). The Harmonized System was designed to ensure a uniform approach for the worldwide tariff classification of products. The United States, European Union and more than 100 other countries around the world are parties to the Harmonized System and utilize it as the basis of determining the tariff classification. The Harmonized System Committee (“HSC”), comprised of the various WCO members, meets twice annually to discuss tariff classification issues, settle disputes, and update the Harmonized System nomenclature and Explanatory Notes. Disputes between WCO members regarding proper interpretations of the Harmonized System rules are generally settled by negotiation between the parties. If these issues cannot be resolved, the parties may refer the dispute to the HSC for consideration and recommendations. CBP leads the U.S. delegation at meetings of the HSC.

Similarly, the U.S. rules for appraising imported merchandise reflects those of the international Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (i.e., the “WTO Valuation Agreement”). For example, the primary basis of appraisement for imported goods is transaction value, which is defined as the price actually paid or payable for merchandise when sold for exportation to the United States plus certain statutorily required additions. There are times when transaction value cannot be used as the proper basis of appraisement—in those cases, the value of the imported goods must be based on other approved valuation methods. Proper valuation of imported merchandise will ensure the accurate calculation of duties, fees and taxes in the country of importation. All members of the WTO are expected to have implemented this common set of valuation rules. The WTO’s Technical Committee on Customs Valuation (“TCCV”) meets twice annually and is responsible for reviewing valuation issues, resolving disputes amongst WTO member countries, and issuing advisory opinions. Disputes arising under the WTO Valuation Agreement may be referred to the TCCV for consideration and recommendations. The United States currently chairs the TCCV, and CBP represents the United States at meetings of the TCCV.

In theory, based upon an item’s commodity description, the tariff classification of a good imported into countries that adhere to the Harmonized System is supposed to be identical up to the first six digits; however, as noted above, many products that would normally be expected to be uniformly classified can be assigned widely varying codes by foreign government authorities because of different interpretations of the rules themselves. The same holds true for the valuation of imported merchandise—where the rules may be arbitrarily applied from jurisdiction to jurisdiction. Foreign customers or their brokers may reject product tariff classifications or product values used by U.S. companies, which are reflected on the commercial invoices and other shipping documents. U.S. companies may even be requested to modify the classifications and values reflected on their documentation in order to comply with the mandates of foreign customs authorities—mandates that may conflict with the requirements under U.S. law.

When such situations occur, CBP invites U.S. exporters to submit formal requests for assistance. U.S. companies’ requests should be addressed to the Commerce and Trade Facilitation Division of the Office of International Trade, Regulations and Rulings. If it agrees with the exporter, CBP will consider the appropriate course of action which may include discussions with the foreign customs administration or dispute settlement before the HSC or TCCV.  CBP notes that it will strive to provide an initial response to the exporter within 60 days of the receipt of a formal request, and will keep the exporter updated on its progress in resolving the conflict.