Customs Duty in the United States

Customs Duty in the International Business Landscape

Definition of Customs Duty in the context of U.S. international business and public trade policy: A tax on imports or exports.

NAFTA Duties (Tariff Elimination) and Fees

Goods brought into Canada, Mexico and the United States are subject to customs duties and taxes. Each country has its own rate of duties. The amount of duties charged is based on the harmonized tariff system classification number of the good, value and origin.

A customs user fee is an amount of money charged for processing goods through customs. NAFTA allows the Parties to maintain existing merchandise processing fees, however, no Party may adopt customs user fees for originating goods.

Waiver or Reduction of U.S. Duties

Note: see the information about NAFTA Duty Deferral below.

Along with requiring the assessment of duty on the merchandise being exported, the duty deferral provisions provide for a waiver or reduction of U.S. duties depending on the duties paid, if any, in Canada or Mexico [19CFR 181.53(a)(3)].

Therefore, once the good is exported, the filer should compare the duties paid in the NAFTA country on the exported good to the duties owed in the U.S. on the imported foreign merchandise.

If the Canadian or Mexican duty is more than the U.S. duty owed, the filer is allowed to waive the entire U.S. duty obligation.

If the Canadian or Mexican duty owed is less than the U.S. duty owed, the filer is allowed to subtract the amount of Canadian or Mexican duty paid against the U.S. duty owed and pay the U.S. the remainder.

Example: Company XYZ imports foreign cocoa into the U.S. and makes a Warehouse entry. Company XYZ manufactures hot chocolate mix by combining the imported cocoa with sugar and other ingredients and packaging it in retail size containers. Upon withdrawal of the hot chocolate mix from the warehouse for immediate exportation to Canada, a NAFTA Duty Deferral CF 7501, Part I, is filed showing $900 in estimated duty due on the imported cocoa. Company XYZ, however, does not pay the duty at this time. Canada assesses the equivalent of US $800 on the imported hot chocolate mix. Company XYZ submits to U.S. Customs, on a CF 7501 – Part II, evidence of exportation to Canada and a Canadian K-84 statement showing payment of US $800 equivalent in duties to Canada. Company XYZ is only required to pay $100 in U.S. duties out of the original $900 U.S. duty amount reflected on Part I of the CF 7501.

Time Frame for Filing a Claim to Waive or Reduce U.S. Duty Owed

The duty deferral provisions allow a 60 calendar day time frame for paying U.S. duties and fees owed. The 60 day clock begins the day the merchandise is exported to Canada or Mexico. This time frame provides the filer a sufficient amount of time to obtain the Canadian or Mexican entry information, i.e. the satisfactory evidence, to substantiate the waiver or reduction of U.S. duties. If the filer does not submit a claim for waiver or reduction within the 60 day time frame, he or she is liable for payment of the full U.S. duties assessed without any waiver or reduction. Failure to present satisfactory evidence, after the 60 day calendar period, is not protestable.

Satisfactory Evidence 19 CFR 181.53(a)(3)(ii)

The satisfactory evidence is the Canadian or Mexican import entry information that is submitted on the CF 7501, Part II, which allows the person claiming duty deferral to waive or reduce U.S. duty owed. The satisfactory evidence consists of the following:

1. the Canadian or Mexican import entry number,
2. the date of importation (in Canada or Mexico),
3. the tariff classification number (in Canada or Mexico),
4. the rate of duty (in Canada or Mexico), and
5. the amount of duties paid (both in U.S. and Canadian dollars or Mexican pesos).

Like the Certificate of Origin for NAFTA claims, the actual paper documentation supporting the Canadian or Mexican import information is not required upon submission of the NAFTA Duty Deferral entry. However, Customs can request the paper documentation to verify the claim for reduction or waiver of duties.

Satisfactory evidence may be submitted in the form of one or more of the documents listed below, which is provided for in 19 CFR 181.47:

1. The Canadian entry document, referred to as the Canada Customs invoice B-3, presented with either the K-84 Statement or the Detailed Coding Statement,

2. The final customs duty determination in Canada,

3. The Mexican entry document, referred to as the “Pedimento”, and/or

4. An affidavit from the person claiming duty deferral. The affidavit must be based on information received from the importer of the good in Canada or Mexico.

The NAFTA Duty Deferral

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.