US Import Tariffs & Duties: Know the Rules...

by Dan Minutillo, Partner

  • International Trade Law

United States (US) business supply chain globalization has created a money-making bonanza for the US Government as imports enter the US triggering payments to the US for import tariffs and duties. This is especially true with the now common and increasing use of the False Claims Act (FCA) by disgruntled employees and others to point US Customs and Border Protection (CBP) to schemers and violators of US import laws and CBP directives.

If an import comes into the US, the import paperwork for that item must contain a Harmonized Tariff Schedule (HTS) number corresponding to the USHTS schedule. That Schedule will tell the importer the duty due to the US on import of an item based on the importer’s description of that item.

The importer chooses the HTS number not the US Government. CBP expects and assumes that the company importing the item will act in good faith. Certain HTS numbers indicate no duty and others indicate duties at twenty-five percent (25%) as a high norm and even more as an exceptional duty. If the importer (company importing the item) chooses the wrong HTS number, by mistake or otherwise, reflecting a lesser duty than is due, then that company can be assessed the delta and penalties.

Companies want to reduce import duties so, occasionally a company will choose an HTS number that reflects a low duty but does not correspond to the description provided in the Schedule. This is a dangerous practice especially for expensive or high-volume items imported into the US. Punitive damages can be assessed against a company if found to have chosen the wrong HTS number intentionally or if that company created a scheme to move product from country to country before imported into the US, arbitrarily lowering the items’ value as it is moved.

Further, a new twist is the use of the False Claims Act (FCA) as a basis to assess and collect additional damages against a company based on this delta. So, if a whistleblower uses the FCA to bring this sort of import duty violation to the US Government’s attention and wins a claim against the offending company, the delta mentioned above can be multiplied as opposed to merely reflecting the actual delta as damages. As a glaring example of this twist and use of the FCA, see U.S. v Samsung C&T America, case number 16-cv-7216, U.S. District Court for the Southern District of New York.

If your company imports items into the US, for any reason, an import duty may be due to the US Government at the time of import based on the USHTS number. This Schedule changes often, duties are revised higher and lower, and item/product descriptions become more complicated and detailed as technology related to that item evolves. More importantly, the component, product, or item imported into the US may have been improved, modified, or changed in some way to reflect a different Schedule number and therefore a different duty amount.

To avoid ghastly penalties by the US Government, make sure that you are using the most up to date Schedule when assessing an HTS number for an imported item, that you chose a number that most closely describes the item, and that you take into consideration any improvement to that item since it was last imported otherwise, you will pay dearly for a violation.

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