Duty Exemptions

The US has FTA’s—Free Trade Agreements—with many countries under which qualifying goods are imported duty-free. Requirements under the different FTAs vary significantly—each is a separate treaty, reflecting different national concerns. Stringent documentary requirements are imposed by Customs to confirm that your goods qualify under an FTA but these are not generally reviewed for adequacy by Customs on entry and until requested. Such requests usually come long after importation. A properly established import program can avail you of the benefits of the FTA while minimizing administrative costs and exposure to retroactive loss of the exemption and to penalties.

US-Made Components?

Merchandise produced in whole or in part from US-made components is entitled to a duty exemption for the value of those components. Goods made here and returned in the same condition as exported may be imported free of duty. Imported products exported for repair or alterations are subject to duties only on the cost of the latter. Merchandise, if it meets certain conditions, may be entered free of duty under bond for their later exportation under certain circumstances. Goods may be entered into a bonded warehouse without incurring liability for duty payment. Failure to meet statutory and regulatory standards for eligibility or failure to maintain proper documentary back-ups will result in the loss of the exemption and could result in exposure to penalties.

What We Do

  • Determine whether your goods are eligible for entry under an FTA and if so, assist you in developing a record keeping system to assure that eligibility can be documented.
  • Suggest changes in your import program from an eligible beneficiary country, often minor, that will qualify you for the FTA duty exemption.
  • Advise you on how to get duty exemptions for US components used in assembly, or partial duty exemptions for goods exported for repair or alteration
  • Assist you develop documentation to confirm eligibility for these exemptions
  • Determine whether your goods qualify for free or reduced duty rates based on tariff classification, qualification for entry under bond, or otherwise.
  • In “grey areas,” we obtain binding rulings where necessary to assure Customs’ acceptance of your qualification for any duty exemption.

More Details

FTAs: The NAFTA was the first FTA and established free trade for qualifying goods from Canada and Mexico. But even before NAFTA, there was the GSP ( the Generalized System of Preferences), a law unilaterally passed by the US in 1974 and still in effect. The GSP allows free entry for most goods (notably excepting textile products and footwear) if made in a recognized “less developed country.” Since NAFTA (which unlike the GSP covers includes textiles and footwear), the US has concluded FTAs with such countries as Israel, Jordan, Singapore, Australia, many Caribbean and Central and South American countries, Morocco, and even Bahrain.

To prevent free entry of goods that were minimally processed or merely transshipped through beneficiary countries, all the treaties have minimal “value added” requirements. Generally 35% of appraised value must be “added’ in a beneficiary country in the form of components made there and/or in direct labor and direct overhead. In some cases, US materials may be included in determining if the “value added” requirement is met. There is there is also a requirement for “direct shipment” from the country of origin to the US. Finally, Customs has published an extensive list of backup documentation that an importer that has or is claiming free entry under an FTA must be able to submit on demand or the exemption will be denied, even if the shipments had been entered long ago. Much of the documentation must be obtained from the producers, and if an importer is no longer doing business with those producers when the Customs request is made, the documentation will be difficult if not impossible to obtain.

United States-origin components are often shipped to foreign manufacturers for incorporation into a manufactured product. When the finished merchandise is imported, the value of the US components may be deducted. You must be able to document that the exempted US components were made and not merely purchased here. But there is a twist. Sufficient processing of a foreign origin material in the US before it is shipped abroad for assembly can confer on it the status of a US component. (For example, the cutting of foreign fabric to pattern dimension in the US turns the cut fabric into a US component.) A claimant under this provision of the tariff must be able to show, if requested that the component was ready for assembly when shipped from the US and did not need “further fabrication” abroad before capable of being assembled. There are often disputes about this aspect of the exemption, best resolved before commencing the program. There are required forms by which the importer certifies to the cost and origin of the US components. Rarely will Customs request supporting documentation a company is well into the program. The claim for this duty exemption can become difficult to support but if record keeping systems are properly set up, it need not be.

There are numerous other ways to import goods duty free. In certain cases, goods may be imported duty free under bond committing the importer to re-export. Foreign made goods may be re-imported after having been exported for repair or alteration. Several tariff provisions themselves carry a zero duty rate. There are numerous commodities that as a result of special interest legislation are subject to reduced rates for a temporary period.

Contact Us for More Information

You are welcome to call us to review any area of concern. Contact Stephen M. Zelman, Esq., at 1+ 212.245.6100 for a telephone consultation, with no obligation for any fee. E-mail at stephenzelman@gmail.com.