Duty Deferral in the United States

Duty Deferral Definition

Duty deferral refers to instances where the person (in general, an entity or corporation) who should pay the duty can delay paying such duty to some future period.

Introduction

Country of origin marking is used to clearly indicate to the ultimate purchaser of a product where it is made. NAFTA marking rules are also used to determine the rate of duty, staging and country of origin applicable for NAFTA goods. See also drawback in this American legal Encyclopedia.

Duty Deferral Programs

For enterprises involved in international trade, some countries have one or several incentive programs relating to duties. Those companies may qualify to import goods without paying any duties (or paying only some duties), if they qualify (in general, if the companies later exported in the same condition as when they were imported, and other requirements, such as the companies used to produce other products for export).

NAFTA Duty Deferral – 19 CFR 181.53

Main rules:

Harmonized Tariff Schedule of the U.S., Chapter 98, Subchapter XIII, U.S. Note 1(c)
NAFTA Duty Deferral Regulations (19 CFR 181.53 and 181.54)

The NAFTA Duty Deferral provisions as set forth in 19 CFR 181.53 apply to foreign merchandise imported into the U.S. using any of the three affected duty deferral programs, i.e., Foreign Trade Zone, Bonded Warehouse, and Temporary Importation under Bond. If the merchandise is manufactured or changed in condition and subsequently exported to Canada or Mexico, then under the NAFTA Duty Deferral provisions these withdrawals for exportation are treated as if entered for consumption for purposes of assessing duties and fees. These provisions became effective for withdrawals for exportation to Canada on January 1, 1996, and will be effective for withdrawals to Mexico on January 1, 2001.

Merchandise imported into one of the duty deferral programs that is subject to NAFTA Duty Deferral is defined as a “good that is subject to NAFTA drawback” within the meaning of 19 U.S.C. 3333 and which is not described in 19 CFR 181.45. For purposes of NAFTA Duty Deferral, NAFTA originating goods are not subject to NAFTA Duty Deferral.

Any withdrawals from the affected duty deferral programs subject to the NAFTA Duty Deferral provisions [19 CFR 181.53] for exportation to Canada or Mexico will require the filing of a NAFTA Duty Deferral entry, entry type “08”.

The withdrawal and exportation of the goods to Canada or Mexico will continue to be subject to the export requirements and procedures for each of the affected duty deferral programs. The requirement of a NAFTA Duty Deferral entry for withdrawals for export to Canada or Mexico does not replace or cancel regulatory export requirements.

Some of the primary regulatory and operational requirements that apply to the NAFTA Duty Deferral entries are listed below.

NAFTA Duty Deferral Instructions: Procedures for Exportation to Canada and Mexico

The NAFTA Duty Deferral Entry:

1. is considered “Customs business” as set forth in §641 of the Tariff Act of 1930.

2. requires an Activity Code “1”, Basic Importation and Entry Bond. The bond conditions set forth in 19 CFR 113.62 have been expanded in the interim regulations for NAFTA Duty Deferral to cover program requirements.

3. is subject to the assessment of liquidated damages for:

(a) duty owed, never reported and paid, as required by the NAFTA Duty Deferral Program, and
(b) late filing of the NAFTA Duty Deferral entry, entry type “08”.

4. is subject to the assessment of any fee that would have been assessed pursuant to section 22 of the U.S. Agricultural Adjustment Act.

5. is subject to the assessment of Merchandise Processing Fees (MPF).

6. is not subject to the assessment of Harbor Maintenance Fees. Harbor Maintenance Fees are assessed on the original importation, i.e., the Warehouse entry or a Temporary Importation under Bond entry and are assessed and paid quarterly on admissions into a Foreign Trade Zone.

7. is subject to the assessment of any applicable antidumping and/or countervailing duties that would have been assessed upon importation into the United States.

NOTE: Antidumping/countervailing duties and fees collected may not be refunded, waived or reduced on condition of export.

8. NAFTA Duty Deferral entries are protestable under 19 USC 1514(a)(3)
[19 CFR 174.11(c)]. (Exception: presentation of satisfactory evidence after the 60 day calendar period, in order to waive or reduce U.S. duty owed, is not protestable.)

MERCHANDISE NOT SUBJECT TO NAFTA DUTY DEFERRAL

The term “goods subject to NAFTA Drawback”, as set forth in 19 USC 3333, means any imported good other than the following:

1. A good entered under bond for transportation and exportation to a NAFTA country;

2. A good exported to a NAFTA country in the same condition as imported into the U.S.;

3. A good that is exported from the U.S. used as a material in the production of another good and that is delivered to a duty-free shop, for ship’s stores or supplies for ships or aircraft, or for use in a project undertaken jointly by the U.S. and a NAFTA country and destined to become the property of the U.S.;

4. A good exported to a NAFTA country for which a refund of Customs duties is granted by reason of the failure to conform to sample or specification, or the shipment of the good without the consent of the consignee;

5. A good that qualifies for NAFTA under the rules of origin set out in Article 401 that is used as a material in the production of another good and exported to a NAFTA country;

6. A good provided for in subheading 1701.11.02 of the HTS that is used as a material in the production of a good provided for in existing Canadian tariff item 1701.99.00 or existing Mexican tariff item 1701.99.01 or 1701.99.99;

7. A citrus product that is exported to Canada, or

8. A good used as a material in the production of apparel, or a good provided for in subheading 6307.90.99, 5811.00.20, 5811.00.30 of the HTS, that is exported to Canada and that is subject to Canada’s most-favored-nation rate of duty upon importation into Canada.

The term “same condition”, as defined in 19 CFR 181.45(b)(1), includes a good that has been subjected to any of the following operations provided that the operation does not materially alter the characteristics of the good:

1. Mere dilution with water or another substance;
2. Cleaning, including removal of rust, grease, paint or other coatings;
3. Application of preservative, including lubricants, protective encapsulation, or preservation paint;
4. Trimming, slitting, filing or cutting;
5. Putting up in measured doses, or packing, repacking, packaging or repackaging; or
6. Testing, marking, labeling, sorting or grading.

AFFECTED DUTY DEFERRAL PROGRAMS

Foreign Trade Zones – 19 CFR 181.53(b)(4)
Merchandise that is manufactured or changed in condition in a foreign trade zone and then withdrawn from the zone for exportation to Canada or Mexico is subject to NAFTA Duty Deferral.

All merchandise imported and admitted into a zone is given a “zone” status. The following are the various types of zone status: nonprivileged foreign, privileged foreign, domestic and zone restricted. For the duty deferral program, Customs is mainly concerned with merchandise put into nonprivileged foreign and privileged foreign status.

Domestic Zone Status

Merchandise placed in an FTZ in domestic status is not subject to NAFTA Duty Deferral if the goods are of U.S. origin or if U.S. duty has been paid prior to admission into the zone.

Restricted Zone Status

Merchandise admitted into the zone to satisfy bond cancellation requirements for a TIB, entered under HTS 9813.00.05, is not subject to NAFTA Duty Deferral until actual withdrawal from the zone for exportation to a NAFTA country.

Bonded Warehouses 19 CFR 181.53(b)(1)(2)(3)

Merchandise that is entered into a bonded warehouse for manufacturing, smelting, refining (Classes 6 & 7) and/or manipulation (Class 8) and withdrawn for exportation to a NAFTA country is subject to NAFTA Duty Deferral.

Temporary Importation under Bond 19 CFR 181.53(b)(5)

Merchandise entered under HTS subheading 9813.00.05 for repair, alteration and processing is subject to NAFTA Duty Deferral upon exportation to Canada or Mexico.

NAFTA DUTY DEFERRAL ENTRY SUMMARY

Persons Required to File Duty Deferral Entry 19 CFR 181.53(a)(2)(iii)

The following persons are responsible for filing duty deferral entries:

FTZ – The person with the right to make entry into the zone,
Bonded Warehouse – The person with the right to withdraw from the warehouse, and
TIB – The importer of record.

Date of Exportation 19 CFR 181.53(a)(i)

The “Date of Export” is defined as the date of importation into Canada or Mexico. This “Date of Export” equates to the “Date of Entry” as found in block 4 on the CF 7501.

The date of export under the duty deferral provisions starts the filing period for:

1. The NAFTA Duty Deferral entry – Part I and The NAFTA Duty Deferral claim – Part II

2. The time for payment of duties and fees owed to the U.S. upon export of the goods to Canada or Mexico.

Filing of the Duty Deferral Entry Part I & Duty Deferral Claim Part II

The NAFTA Duty Deferral entry and claim are designated as entry type code “08″ and are automated for use within the Automated Broker Interface (ABI) and the Automated Commercial System (ACS).

The NAFTA Duty Deferral entry summary consists of two parts. The Entry (Part I), which is mandatory, consists of the U.S. import/export information setting forth the filer’s obligation for U.S. duties due and payable. The Claim (Part II), which is optional, consists of the required satisfactory evidence, i.e., the Canadian or Mexican entry information, submitted to claim a waiver or reduction of U.S. duties owed along with any payment of any duties and fees. The NAFTA Duty Deferral Entry and Claim must be reported on a CF 7501 as set forth in 19 CFR 181.53 (a)(2)(iii)(B). The yellow statistical copy of the CF 7501 will not be required. Statistical information for exportations to Canada will continue to be reported to the Bureau of Census from the Canadian statistical agency, Statistics Canada. Statistical information for exportations to Mexico will be captured on the Shipper’s Export Declaration, Department of Commerce form 7525-V. The entry summary requires a CF 301, Activity Code “1” Basic Importation and Entry Bond, as set forth in 19 CFR 113.62.

NAFTA Duty Deferral Claim

The optional NAFTA Duty Deferral claim, reporting the claim for a waiver of reduction of duties, i.e. satisfactory evidence, must be filed on a CF 7501 within 60 calendar days from the date of export. The entry summary number submitted on the Entry – Part I must be used to file the Part II Claim. The payment of the U.S. duties and fees owed along with the satisfactory evidence must be filed no later than 60 calendar days after the date of export to the NAFTA country.

As required in 19 CFR 181.53(c), Record keeping requirements, the person claiming a waiver or reduction of U.S. duty on goods under the NAFTA Duty Deferral Program will maintain adequate evidence of the amount of any Customs duties paid to Canada or Mexico on the exported good. Failure to maintain such records will result in the denial of the claim for waiver or reduction of duty.

Drawback and Duty Deferral Programs

The NAFTA provisions on drawback and duty deferral applies to goods imported into Canada or the United States and subsequently exported to the other country (i.e., Canada or the United States) on or after January 1, 1996. The NAFTA provisions on drawback and duty deferral will apply to goods imported into Canada or the United States and subsequently exported to Mexico, or imported into Mexico and subsequently exported to Canada or the United States, on or after January 1, 2001. Thus, transactions involving either the importation of goods into Mexico or the exportation of goods to Mexico will not come under the drawback and duty deferral provisions of the NAFTA until January 1, 2001.

Note: see also Duties (Tariff Elimination)

Liquidation

The duty deferral regulations provide specific instructions on liquidation of the NAFTA Duty Deferral entry. (Please note these instructions are based on interim regulations that may be subject to change upon the issuance of final regulations.)

1. Customs will liquidate the NAFTA Duty Deferral entry by comparing the evidence submitted verifying the total amount of Canadian or Mexican duty paid to the total amount of U.S. duty owed on the foreign goods.

2. The liquidation of the NAFTA Duty Deferral entry will appear on the bulletin notice of liquidation.

3. The bulletin notice of liquidation will be the legal notification of Customs finalizing the entry.

Liquidation of the entry if no claim is filed 19 CFR 181.53 (a)(4)(I)

For NAFTA Duty Deferral entries submitted without a follow-up claim or payment of duties and fees owed, Customs would liquidate and issue a bill for the total amount indicated on the Part I of the duty deferral entry.

If the entry is not liquidated or extended within one year from the date of the entry, the entry will be deemed liquidated by operation of law in the amount reported on the Part I of the duty deferral entry.

A 514 protest can be filed within 90 days of the posting of the liquidation. However, this cannot be a protest to present the satisfactory evidence for a waiver or reduction of duties.

Liquidation of entry if a claim is filed 19 CFR 181.53 (a)(4)(ii)

This part of the interim regulation states that if a claim is received, an extension of liquidation of the entry will take effect for a period not to exceed 3 years from the date the entry was filed. Before the close of the extension period, Customs will liquidate the entry. If the entry is not liquidated within 4 years from the date of entry, it will be deemed liquidated by operation of law.

Reliquidation pursuant to 19 USC 1508 (b)(2)(B)(iii) [19CFR 181.53(e)]

Customs may reliquidate a NAFTA Duty Deferral entry under 19 USC 1508 at any time within 3 years from the date of export even after the liquidation of the entry has become final. This type of reliquidation is for situations in which the duty used to waive or reduce U.S. duties have been refunded by Canada or Mexico. After this 3 year period the liquidation of the entry is final.

EXPORTATIONS FROM U.S. DUTY DEFERRAL PROGRAMS TO A CANADIAN OR MEXICAN DUTY DEFERRAL PROGRAM

The NAFTA Duty Deferral provisions also provide for merchandise imported into the U.S. using any of the three affected duty deferral programs, i.e., Foreign Trade Zone, Bonded Warehouse, and Temporary Importation under Bond, manufactured or changed in condition and subsequently entered into a duty deferral program in Canada or Mexico. The entry of the exported good into a duty deferral program in Canada or Mexico constitutes an entry or withdrawal for consumption and the exported good is subject to duty and fees pursuant to
19 CFR 181.53 (a)(2)(I)(B). Duty and fees will be deposited with Customs 60 calendar days, on an NAFTA Duty Deferral entry type “08”, after the date the good is entered into the duty deferral program in Canada or Mexico.

The filer may receive a refund on the regular Customs duties paid on the NAFTA Duty Deferral entry once the exported good is withdrawn from the duty deferral program in Canada or Mexico.

If the good in the Canadian or Mexican duty deferral program is withdrawn and entered into the commerce of Canada or Mexico, the filer can claim drawback under 19 CFR 181.44 if the good is withdrawn within five years from the date of the original importation of the good into the U.S.

If the good within the Canadian or Mexican duty deferral program is withdrawn and exported to a non-NAFTA country, duty deferral will not apply and a refund of duties may be granted upon presentation of satisfactory evidence of the exportation of the good.

COLLECTION OF DUTIES & FEES

The following duties and fees will be assessed and collected on those withdrawals from the duty deferral programs subject to NAFTA Duty Deferral:

1. Customs Duties – class code 014,
2. Antidumping and/or countervailing duties,
3. Merchandise Processing fees, and
4. Agricultural fees.

The full duties and fees owed are due no later than 60 calendar days from the date of export. The provisions for claiming a waiver or reduction of the duties owed apply only to the customs duties and must be claimed within the 60 day time frame. Duties and fees may be paid at any time within the 60 day time frame from the date of export and payment upon filing of the duty deferral entry Part I is not precluded. For example, this might occur when the filer knows the exportation to Canada or Mexico has a Canadian or Mexican duty rate of “FREE” and therefore, the filer would not be able to claim a waiver or reduction of the U.S. duty obligation. Under this circumstance, there would be no satisfactory evidence to show the amount of duties paid in Canada or Mexico.

DUTY CALCULATION FOR EXPORTATIONS SUBJECT TO NAFTA DUTY DEFERRAL

The following is a summary of how the duty is assessed on merchandise withdrawn from each duty deferral program for exportation to Canada or Mexico.

Bonded Warehouse [19 CFR 181.53 (b)(1)(2)(3)]
Manipulation [19 CFR 181.53(b)(1)]: Goods imported into a bonded warehouse and changed in condition after manipulation will be assessed duty on the goods in their condition and quantity and at its weight at the time of withdrawal for exportation to Canada or Mexico.
Bonded Manufacturing Warehouse [19 CFR 181.53(2)]: Goods imported into a manufacturing warehouse and exported to Canada or Mexico will be assessed duty on the materials in their condition and quantity and at their weight at the time of their importation into the U.S.
Bonded Smelting or Refining Warehouse [19 CFR 181.53(b)(3)]: Metal-bearing materials imported into a bonded smelting and refining warehouse will be assessed duty on the imported material at the time of its importation.
Foreign Trade Zones [19 CFR 181.53(b)(4)]: Goods that are manufactured or changed in condition in a foreign trade zone and then withdrawn from the zone for exportation to Canada or Mexico are subject to NAFTA Duty Deferral.
Nonprivileged foreign status: Goods in nonprivileged foreign status are assessed duty on the goods in their condition and quantity and at its weight at the time of its exportation from the zone to Canada or Mexico.
Privileged Foreign: Goods in privileged foreign status will be assessed duty on the goods in their condition and quantity and at its weight at the time privileged status is granted upon admission into the zone.
Temporary Importation under Bond [19 CFR 181.53(b)(5)]: NAFTA Duty Deferral applies specifically to goods entered under HTS subheading 9813.00.05 for repair, alteration and processing. Duty will be assessed on the merchandise at the time of its importation into the U.S. Exception: Merchandise, regardless of the origin, imported from a NAFTA country for repair or alteration and exported back to a NAFTA country is not subject to the NAFTA Duty Deferral provisions.

Duty Deferral