hello, my name is Ray Bowman. I have spent over 30 years in importing and exporting. I'm a certified global business professional. I'm also the director of the EDC Small Business Development Center, which is an SBA program that's funded to give free business advising services to small and medium-sized businesses. I'm also the program chair of the Southern California District Export Council, where volunteers appointed by the US Secretary of Commerce to promote US exports. I'm also a professor at California Lutheran University as well as Santa Barbara City College, teaching courses in trade finance, supply chain logistics, and international business. I also belong to a number of trade associations, including the American Association of Exporters and Importers, as well as Nazz byt, who not only sponsors the CGBP certification but is also dedicated to providing international trade education to small and medium-sized businesses. So in this lesson, we're going to give an overview of importing into the United States. As much as this is an overview of importing in the United States, a lot of these practices that would be

common importing into the U.S. applied to a lot of other countries as well. So in this video, we'll go through, you know, concepts, evaluation, classification. So a lot of these concepts will translate to import procedures in other countries as well. So the first thing we have to look at is a value as far as what you need to know when you first start importing into the U.S. So in the U.S., shipment valuation is based on FOB value. So if you've looked at somewhere our videos covering Incoterms, FOB value is all of the items of costs up till the point the goods are loaded onto a ship. So that would be not only the cost of goods into the value but the cost of documentation and transportation up to port. FOB value is FOB value, but other countries may differ. So throughout Europe, value for customs purposes of CIF. So it doesn't apply to all countries. So you have to check with your particular country to see what the valuation is based on as far as the Incoterm.

valuation is primarily based on transaction value. So, customs terms us as the price paid or payable. What that really means is that's code word for the price that you're, that the importer is actually paying. Is the price that they should declare for customs. In other words, if your transaction value from your supplier overseas is $50,000, then that's the price. If that's what's on the invoice, that's the price that you have to declare. Now, transaction value is based on a fair market price. In other words, you can't artificially have your supplier lower the price just to get a lower duty rate. It has to reflect really a fair market value. So, because of that, customs has the option to look at the valuation of your goods using market value. In other words, what would an item of your type go for in the market. Now, the way customs knows this is customs tracks all of the goods. So, if you can imagine in the United States, there's close to 30 million plus import transactions coming into the United States. So, they're able to track all of

those transactions and trends year after year so customs pretty much knows the general value of different types of commodities. Even though that value can have a range to it, customs really knows what a reasonable range for value is so they can check that. Now if you're in a situation where you have what's called related parties, in other words, the factory, the supplier that you're buying from overseas, you're related to in some way. So that could be being the same company, another division overseas of the same company, or it could be a company that you have interest in or part ownership in. In this case, it's not considered your transaction value isn't considered necessarily a true transaction value because in a sense you're buying from yourself. And this includes a lot of transactions as much as 40% of US transactions can be what we call related party. So in that case, Customs has the option of looking at computed value. So if there are related parties in a customs audit, customs might ask you for the actual breakdown of

costs between buyer and seller to determine the proper value. So again, the primary means of evaluation is transaction value, but customs can choose to look at both market value and computed value for most items. Another critical item of importing to the United States is the harmonized code. Now, the harmonized code is a six-digit code that describes products - all kinds of products. And upwards of 200 different countries use the harmonized code as their system to describe products, as well as duties and taxes that go with those product descriptions. Now, in a lot of countries, we go to ten digits. So, for example, in the US, we go out to ten digits. Now, the first six digits are harmonized throughout the world, but those last four digits can vary. So, for example, the last four digits of the harmonized code in China might be different from very similar goods in the United States. So, it's very important to understand what the right harmonized code is. And now, the harmonized code is based on end-use and essential character of the products. So, what that means is is that

the duty rate or the description. The item that you pick has to most closely describe the end use of the product. So, let's say that you have a product like a hammer. Let's say that you have a rubber mallet and you have a ball-peen hammer. And your item is a rubber mallet. But let's say for argument purposes that the duty rate that you have might be lower for a ball-peen hammer even though you have a mallet. Well, you can't choose one over the other just to get a lower duty rate. You have to pick that description that's going to most closely describe what the item is used for and what the essential character is of the item. So, that's a critical part of how we determine the right classification for goods. Other things we need to look at is the rate of duty. Now, the rate of duty is references that harmonized code. So, our first step is getting the right harmonized code. But then once we have the right harmonized code, that rate of

Duty is based on either value or quantity, so the vast majority of duty rates we see are based on the value of the product. But it can also be based on quantity, so you might have wine where the duty rate is per liter, or an item that's per kilo duty rate on it. So there's various schemes for determining duty. Duty rates can also include what we call antidumping or countervailing duties. So these are compound duties. These compound duties are assessed for products that the US feels may be coming in at lower than market rate. So this compound duty is a way of equalizing or lessening the advantage that those products might have. So there's a variety of different products. It's important to know if your products fall under any countervailing or any dumping duties. The next important thing with the import process is product marking. It's very important that products be marked with their correct country of origin. Now remember, country of origin is not where the goods ship from, but it's where they got their.

essential character. So in other words, if I'm a company in the UK and I've imported goods from China, just because I've re-exported them to the US doesn't make those goods UK origin. Again, it's where the goods were made, where the goods got their essential character, and these goods have to be marked. Now, the rule of marking is goods have to be marked as permanently and conspicuously as the products will allow without damaging the value of the products. So, for example, most clothing items, if you look at the tag, like say this shirt, will have a tag on the back of it. That tag will have the country of origin of the goods indicated on there. If you have something like a watch, a watch will be embossed on the back. Where you may have a leather belt, that may have an embossing on the back. So, various goods have various different rules with how they should be marked. The best way to know how to properly mark goods is to check with the US customs broker who can in turn check

with customs import specialists and make sure that the proper marking that your goods are marked in the proper way. Now, there are some exemptions for marking some goods. Again, the marking may be impossible just from a cost standpoint. So let's say you're importing pins or importing nails or screws. You really can't mark each individual one, but there are provisions that allow for the packaging to be marked. So again, it's very important to check for the different provisions, but marking is a very important part of US Customs law. US Customs wants the end-user to be able to make determinations as to what country of origin they want to buy their products from. So, it's very important that all of these markings be something that the consumer can look at. Now, there are a whole host of government agencies, so US Customs Enforcement, government agencies. So you might have a month on some of those other agencies: Fish and Game, Food and Drug, Consumer Product Safety Commission, Department of Trade controls. So you may have a whole host of all of these different regulations, and it's important to check.

with licensed customs worker to find out what other regulations apply to your product. Do you need certain types of product safety ratings? Do you need does it does the product need to be consistent with rules of Food and Drug Fish and Game EPA FCC so there's all kinds of different regulation schemes that your product can fall under and most of those schemes are referenced by the customs broker through proper classification of your product. The other essential thing in the importing process is customs bonds so all importers no matter how frequent infrequent they are all importers need a customs bonds for their items. Sometimes the bond is provided through a freight forwarder or a courier company but for most large importers most frequent importers they have they have or should obtain their own bond. There's essentially two types of customs bonds now again these customs bonds aren't to protect the importer their per took there to protect customs so let's say that you default on your duties and taxes customs can collect on that bond so to reduce their risk so the bonding

procedure is very important, and it's a requirement, and you should have a bond in place before you begin the import process. So, the two types of bonds are a single-entry bond. Basically, if you are only doing one shipment a year, you may use a single-entry bond, or a continuous bond. A continuous bond is good for 12 months. The average bond price is about four to five hundred dollars, depending upon the product that you're bringing in. Now, that four to five hundred dollars will cover you to a minimum of somewhere around fifty thousand dollars of duty per shipment. So, when you look at fifty thousand dollars of duty, that would cover a very large value of an import. So, it covers. So, if you look at the coverage that most importers need, this basic bond in that five hundred dollar range will cover most companies, most importers. How long does it take to get a bond? It takes about ten business days to get a customs bond. Now, the one thing that you have to be conscious of if you're a foreign importer, in other words, if you're a

foreign company who's established as an importer of record in the US. Then this process may take longer because customs needs to run some background checks prior to granting that bond application. So word to the wise, always leave yourself enough time to get your bond into place before you start the importing process. Business names can affect your bond, so you also want to be conscious of the fact that if you have a customs bond under one name. And let's say you change you change from a sole proprietorship to a corporation or you change companies or you have a merger and acquisition. Then it's very important to notify customs of this and make sure that you have a transition point from one bond under one entity to another bond under the new entity. So things to think about, a lot of companies can get into problems with mergers and acquisitions as they relate to customs bonds, which will in turn slow down the importing process. It's very critical within the import process to hire a competent licensed customs broker now.

there's a lot of licensed customs brokers out there. Basically, a licensed customs broker is an individual or company that's been licensed by US Customs to clear goods on behalf of companies. So, they're basically licensed agents who can act on behalf of companies to clear goods through customs. Now, for a customs broker to get a customs broker's license, it's a very intensive test. I think the last last test they had had less than a ten percent pass rate. Licensed brokers go through over a year a background in security checks. Every freight forwarder that clears goods through customs has to of a corporate license holder as well as license brokers and all of their locations where they clear goods. So, it's a very intensive process. But having said that, it's still important to pick the right customs broker. So, that customs broker should be your trusted advisor on areas of classification, valuation, marking of the goods. It always helps to get references, make sure that you're working with a customs broker that understands your product. There are some customs brokers who may focus on jewelry.

importation courier entries produce shipments so it's very good to go through an interview process when selecting a broker to make sure that they're experienced with the types of commodities that you're bringing in. So that's a very important feature of using your customs broker and sitting down with your customs worker prior to importing showing them your product discussing classification country of origin marking discussing related party issues so these are all things that are important to go over with your customs broker. Delivery carrier a customs broker once they clear the goods they issue what's called a delivery order and that delivery order is issued to a trucker that once the goods clear let's say through the seaport that then they have sort of a sub power of attorney to be able to grant access for a trucker to pick up the goods and deliver to you so it's good that you're aware of it the procedures between clearance and pickup can vary from area to area in the US for example in the US we have we have a

procedure in through the LA port LA and Long Beach port where we have a procedure called pure paths so that's an additional fee that you had need to be aware of for the truckers to deliver during business hours. So it's just good to check whatever area you're in to know what that process is between clearance of the goods and your licensed broker making sure it gets on a truck carrier. Some minimum required documents now there could be a lot of different documents required in the US entry process but here are the three most critical your commercial invoice your commercial invoice is basically an invoice from the international seller to the international buyer the packing list which shows how the goods are packaged this is essential because of customs wants to inspect the goods let's say that you're bringing in twenty different commodities and they're just concerned with inspecting one they want to be able to look at the packing list and be able to locate that merchandise say if it was in a container or a box or crate or pallet the bill of lading is the

carrier's receipt, and this is an essential document that's required for US Customs entry purposes. Now, a little bit of note about the commercial invoice. Commercial invoices can look and be format in all kinds of different ways, but you at least need to have the information of the seller, the information of the buyer (importer, that would be you), and a full description of the goods. So, not only a model description of the goods, but a general description of the goods, something that anyone who could pick up the invoice would be able to understand what the product is that you're importing. So, not just let's say X Y Z vacuum cleaner. You know, if you just said X Y Z, they wouldn't know what it is, but is an X Y Z vacuum cleaner, X Y Z hammer. So, you want to be both specific and general in your description of the goods. You want to properly describe the unit amount and the currency of that amount because different import entries can be in different currency denominations. So, US Customs, if they're not told, they will

assume that the value that you end is US dollars, so it's important to identify what the currency is. It's important to identify the country of origin of the goods, so that's very important. Also, to if the invoice includes things like freight and insurance, it's very important to separate those within the commercial invoice, so then your customs broker can deduct those from the dutiable value of your goods. So, very important items: currency of settlement, the proper Incoterms is very important to have on your commercial invoice, description of the goods both specific in general, unit amounts both in weight measure as well as value, and the country of origin of the goods. So, those are very important. Customs brokers, once they clear your goods, they generate other types of documents. They generate an entry manifest, a permit for immediate delivery, in other words notifying customs of the entry, and then finally an entry summary. An entry summary is a document that you will receive that will be a summary of your import transactions indicating things like the goods, the duty rate, what other customs fees were included in that.

transaction, and these are documents that the importer has to keep in their records. So if US customs audits you, that you have a full set of documents, including your entry summary. So important documents to have, you're required to have them in the US. So just an overview of what the import process looks like. Step one, an importer places a purchase order with their foreign supplier. Then the goods are picked up at the factory. At the point the goods are picked up in the factory, along with that process, there's a pre-advice that has to happen to notify customs that goods are being loaded destined for the US. Now we used to call this ten plus two. We now call it ISF for importer security filing. This is information that has to be transmitted prior to those goods being loaded onto a ship. So this is critical. It's the responsibility of the importer of record in the US to make sure that this notification happens. Now the advice that I always give is to make sure that your ISF is handled by your import broker because your import broker has to

clear those goods in the first place. It just makes sense that they help coordinate the gathering of the information prior to the goods being loaded. Also, your import broker in the US is liable under US law to you, whereas a freight agent overseas may not have the same responsibilities as a company located here in the US. So, it's very important to treat the importer security filing very important. If goods aren't filed, they won't get loaded to come to the US. There can be penalties involved, so you want to make sure that you have that. Then the customs brokers files the following documents. They file an entry manifest, a right to make entry, the commercial invoice, the packing list. They have to show in evidence that the shipment is covered under either a single entry or continuous bond. And then finally, when the shipment is processed, you have an entry summary which summarizes the import transaction valuation. We discussed valuation before, but let's take a little bit closer look at what valuation means. So valuation is not only that transaction computed or market value, whichever customs

determines is the formula to look at valuation, but there's going to be some other things that affect value. Things like packaging costs, royalties if the writing royalties paid that's part of the value affects the value transaction value of the shipment were there any commissions so do you have to adjust or change your transaction value to look at any commissions. Another important feature is assists. What an assist means is if you are the importer in the US and you assist the party overseas you have to declare that value of that assist. So let's say that you have a machine that makes a certain product and your supplier overseas actually can't make the product without that machine. You export it over there and supply it to them without any charge at all that's an assist right so you have to declare the value of that machine. Other types of assists that I see more commonly or things like labeling. I had a client some time ago that they were importing clothing items and they would send up all of the tags all the different tags.

and packaging material from here to the to the supplier overseas. Well, they didn't declare that after a period of years, they had that added up into a lot of different penalties. So, what was amounted to about ten or fifteen thousand dollars a year in assists turned out to be over a hundred thousand dollars in penalties, legal costs to mitigate those violations. So, you want to be very conscious of assists in managing those related party transactions. Again, if you're related in any way to the party that you're buying from overseas, you have to declare that. Let your customs broker know. In turn, your customs broker will make those declarations on the entry to U.S. customs. Classification again classification involves the end-use or essential character. That's what determines the classification. If you're unsure about the classification of your product, I always recommend binding rulings. Now, your customs broker can help you with a binding ruling. It's basically a request letter that you send customs to ask for a determination of binding determination on what your classification butyrate is. This is a

great way to make sure that you're compliant. It's one less thing for customs to have to audit you on, and it keeps your import activity consistent. Because in the U.S., different customs districts have the right to make interpretations on your product, well, a binding ruling helps harmonize those interpretations. Because you have that ruling letter, you can get non-binding opinions. So oftentimes, your customs broker can bring issues to import specialists with customs and ask them for non-binding opinions to help you formulate what your import strategy or your program is going to look like. If you have determinations from customs and you want to argue those determinations, you can do that in the court of international trade, so that's open to you. I've had clients who have been in arguing cases in the court of international trade, others not, but that is an option to you. Another great resource is what's called a cross system. And what the cross system is, is a database of all the various customs rulings over the years. If you go on to

the US Customs website at CBP dot gov. You can keyword search the cross system, and you can actually look at other ruling letters from other companies. So, it's a great source of doing your homework prior to sitting down with a customs broker or prior to doing a binding ruling payment to customs. You can pay customs with the check. You can duties can be advanced through a broker. So, if you have a credit line with your customs brokers, quite often a customs broker will advance the payment of duties to expedite the shipment and then bill you and charge you a small finance fee for advancing those funds. Some companies choose to do ACH, which is an automated Clearing House. It's basically an automatic bank debit that Customs takes to cover the duties and taxes. There's also a program called periodic monthly settlement. What this is is an electronic debit that happens on specific times during the month. The advantage to periodic monthly settlement is it can give you anywhere from 15 to 45 days float before those monies come out of

your account. So, for the large importer, this can be a real money saver and a real help of cash flow in finance. Some typical import fees: U.S. Customs charges or harbor maintenance fee. This is for the dredging of the harbors, so that's assessed to any shipment that comes in via seaport. All goods have what's called a merchandise processing fee. So, that fee can vary, but it does cap out at a few hundred dollars. Then there's a customs broker's fees. This is the fee that your customs worker charges you for the transaction. There's the duty rate, if any duty rates apply to your shipment. There may be other fees for additional documentation declarations, and you can talk to your customs worker to find out what those are. There's going to be delivery fees. So, once the goods clear customs, there will be a delivery to the importer or the consigning of that importer and pre-export data transmission. So, as you remember, we mentioned the ISF or the Importer Security Filing that happens. Well, if a customs broker handles that.

for you, there will be a small fee associated with that. Customs inspections. There's all kinds of different ways that customs inspects. One type that most importers really don't feel is what's called the census alert. This is basically a message that customs will give to a customs broker, basically confirming the accuracy of information. If they have any question regarding that, most of the time, these are inquiries that can be answered by an informed customs workers familiar with your program. But your customs worker might call you with additional questions regarding your transaction. To you know to answer a census alert. Then you have document examinations. So rather than inspect goods, customs will quite often ask for the original documentation. Most customs transactions are done electronically, but customs can choose to look at the original documents. In that case, the customs broker will have to hire a courier to take the original documents and bring them to customs for them to look at and sign off. There's x-ray examinations. So roughly about 2 million x-ray transactions happen every year. And this

is basically your goods going passing through an x-ray machine, and customs can even put an entire container through an x-ray process. There can be a tailgate examination, which is basically opening the back of the container and checking through to see the contents that are in there. Then there can be a contraband inspection, so this is a very intensive inspection where they're literally offloading the goods out of the container and making a thorough check of all the goods within that container. There are different fees for inspections, so some of these fees are related to fees that customs may charge. A lot of these fees are fees for the physical inspection to happen, so things like messenger fees to bring the documents to customs, trucking fees. If goods are inspected, they're often taken from the port and trucked to what's called a bonded warehouse. Within that warehouse, that's where customs will inspect the goods. Likewise, that warehouse will charge a storage fee. There also be a fee for that physical inspection of the goods. So what does that mean? Basically, what that means for

an importer is delays of up to 5 days or more and about $1,500 at least in in the Los Angeles port. The average is about $1,500. So if you're a new importer, the chances of getting inspected are about 80%. So you always have to budget and plan that if you're especially if you're new importers that you will get some inspections periodically and you have to account for that time and effort that goes that goes with that. There are various trade agreements, so it's always important to sit down with your broker and be aware of what some of the critical trade agreements are. NAFTA is a real big one in the U.S. because our top two trading partners are right next door to us, U.S. between US Mexico and Canada. So we have Canada and Mexico to contend with. Now in order to qualify for NAFTA, you have to submit a NAFTA certificate. The NAFTA certificate of origin is a slightly different between the countries, so you have to be conscious of that if you were shipping.

to Canada, you would supply them with a Canadian NAFTA certificate. Part of applying for NAFTA is demonstrating in your paperwork the classification that gives you permission to fall under NAFTA. So there's different what's called preference criterion, so you check. It's important to check with your customs broker on what this preference criterion is, in other words, the formula in which you're claiming NAFTA origin for your products. NAFTA can be a little bit complicated because, again, it's a combined or possible combined country of origin ruling between three different countries. So you have things items like tariff shift, you have issues in valuation. So it's very important to sit down with your broker, licensed customs broker, and go over these issues. If you have goods that you think qualify for NAFTA, there's GSP, which is a duty reduction program for a lot of products. There's an automotive products trade act, so there's a lot of automotive industry trade that goes between particularly Canada and Mexico in the U.S. There's Caribbean-based Recovery Act, so there's a whole

host of different trade agreements overall. There's roughly about 30 different trade agreements out there, so it's important to check to see if your goods fall under some of those. Duty relief programs potential barriers to importing. So, some of these barriers are things that you really can't change, you really can't eliminate or avoid, but if your product is subject to these, you have to have a strategy to make sure it's included as part of your cost to doing business. So, you might have items subject to import quotas. Basically, a quota is a limitation on the amount of any type of good that you can import into the U.S. These quotas basically open up and shut down periodically, so it's important to deal if you have items that are under quota to work very closely with your customs broker so that you can monitor that quota and make sure that you don't have any interruptions in your import activity. There's the Lacey Act. Basically, the Lacey Act is related to wood products.

if you have any kind of wood product, it could be a handle, a wood handle for a tool. It could be furniture, it could be all kinds of different products, but basically the Lacey Act requires that the species of wood be identified in the import documentation process. So again, work with your customs worker very closely if you have wood products and to see if they're subject to Lacey Act and what extent they're subject to the Lacey Act. There's the Consumer Product Safety Act. This is a big issue, particularly with children's toys, children's items. So the CPSC was really just a local consumer regimen scheme, but now the CPSC is really getting involved in the international supply chain. So it's very important to know which of your products may fall under the CPSC. Again, importer security filing is required on all imports. So it's very important to check again with your customs broker and freight forwarder and your supplier to make sure that that filing is done prior to the goods loading at the port.

of origin to come to the US. Trademarks and copyrights are very important. The U.S. Customs protects trademarks and copyrights. If you have items that are subject to trademarks and copyrights, it's very important that you check to make sure you have the proper rights and authorities to use them. If they're your own trademarks and copyrights, it's very important to realize that if you work with customs, they can help enforce and protect your trademarks and copyrights. They will only do that, however, if you file with them. So there's a lot of companies that enjoy good protection of their items being, you know, being black market or gray marketed by making sure that their trademarks and copyrights are registered with customs. So going over a final checklist, if you're going to be an importer into the US, it's very important to seek expert advice. So expert advice can come from your freight forwarder, primarily your customs broker. On more complex issues, you may seek the advice of a trade attorney. You may talk directly to customs on certain issues, but it's very

important to get expert advice. I'm a director of a small business development center. This is a program throughout the US that gives free advice to small and medium-sized companies, and we have a lot of trade experts throughout the network that can help direct you with referrals and some advice as well. On your importing program, always have someone designated in your import program to be the lead. In other words, being that person who's going to take responsibility for your compliance program and making sure that both your records, your compliance, and products get classified properly. So you want to make sure that there's one designated person within your company, no matter how small your company is. Know your customs requirements, both present and future. It's very important to look at what the importing trends are regarding your product so that you can anticipate any possible changes that are either positive or negative in terms of your product consistency and best practices. Again, the importing process is a very detailed process where you're reverting duties and taxes to the US. So record-keeping and having consistent

procedures is very important. Having the proper description of the goods in harmonized code is essential. This is where you really have to work closely with your licensed customs broker to make sure that your goods are properly classified. And if there's any question, seek out binding rulings documentation for special programs. Make sure if there's any special programs that relate to your product that you have the proper documentation for it. Transaction value, make sure that you understand your value and that your value accounts for things like assists, royalties, commissions, trade marking. All of these things need to be considered in terms of your transaction value. So it's very important to have good accurate valuation. And if there are any mistakes, please volunteer the information to customs. It's better to disclose than have customs find that in an audit. If you have related parties, you have to declare that with customs. Again, royalties are very important to account for within your imported value and your documentation markings, trademarks, and copyrights. Again, country of origin marking is where the goods originated from, where they got their central

character and not necessarily where they ship from other government agencies. Again, the U.S. Customs enforces all the different government agencies, so it's important to understand what your requirements are, not only from a custom standpoint, but from any other government agency that may have regulations that cover your product. Compound duties, make sure that you account for them if you're subject to them. And again, proper documentation. I can't stress enough the importance of documentation. Over 7% of international trade value is wasted from bad documentation. So anyway, I hope this overview helps you understand the import process. There's a lot more to go over, but this is just some of the basics to get you started. So I hope this video was helpful for you.

Importing into the United States

Importing into the United States