Trade Intermediaries and Services

1. Customs Brokers

Customs brokers are persons who act as agents for importers for activities involving transac­tions with the customs service concerning (1) the entry and admissibility of merchandise; (2) its classification and valuation; and (3) the payment of duties and other charges assessed by customs or the refund or drawback thereof. A customs broker could be an individual, partnership, or corporation licensed by the U.S. Department of the Treasury. Finding an honest and knowledgeable broker is crucial to the success of an import firm (see Interna­tional Perspective 16.4). Dishonest brokers have, for example, been known to make incorrect entries at high rates of duty and to bill the importer and later seek and pocket the refund. Brokers’ failure to make timely filings can be costly to the importer (Serko, 1985).

1.1. Duties and Responsibilities of Customs Brokers

Customs brokers fulfill a number of functions:

Record of transactions: Customs brokers are required to keep a correct and itemized record of all financial transactions and supporting papers for at least five years after the date of entry. Such books and papers must be available for inspection by officials of the Treasury Depart­ment. Brokers are required to make a status report of their continuing activity with customs. A triennial status report and fee must be addressed to the director of the port through which the license was delivered to the licensee.

Responsible supervision: Licensed brokers must exercise responsible supervision and con­trol over the transaction of the customs business. A broker must provide written notification to customs within thirty days after terminating any employee hired for more than thirty consecutive days.

Diligence in correspondence and paying monies: Each licensed broker is required to exercise due diligence in making financial statements, in answering correspondence, and in prepar­ing and filing records of all customs transactions. Payments of duties and other charges to the government are to be made on or before the date that payments are due. Any payment received by a broker from a client after the due date is to be transmitted to the government within five working days from receipt by the broker. A written statement should be made by the broker (to the client) accounting for funds received for the client from the government, as well as those received from the client when no payment has been made or received from a client in excess of charges properly payable within sixty days after receipt.

Improper conduct: The regulations prohibit the filing of false information, the procure­ment of information from government records to which access is not granted, the acceptance of excessive fees from attorneys, or the misuse of a license or permit. The licensee of a broker that is a corporation or an association can be revoked if it fails for 120 continuous days to have at least one officer who holds a valid broker license.

1.2. License Requirements

To obtain a customs broker license, an individual must be (1) a citizen of the United States (but not an officer or employee of the United States); (2) at least twenty-one years of age; (3) of good moral character; and (4) able to pass an examination to determine that he or she has sufficient knowledge of customs and related laws.

To obtain a broker’s license, a partnership or corporation must have one member who is a licensed broker and must establish that the customs transactions are performed by a licensed member or a qualified employee under the supervision and control of the licensed member. Disciplinary action for infractions, such as making false or misleading statements in an application for a license, conviction after filing of a license application, violation of any law enforced by the customs service, and so on, could result in a monetary penalty as well as the revocation or suspension of a license or permit.

A license is not required to transact customs business by the exporter or importer on his or her own account. This also extends to authorized employees or officers of the exporter/ importer or customs broker. A license is also not required for a person transacting business in connection with the entry or clearance of vessels or for any carriers bringing merchandise to port. A broker who intends to conduct customs business at a port within another district for which he or she does not have a permit must submit an application for a permit to the director of the relevant port.

2. Free-Trade Zones

Free-trade or foreign trade zones (FTZ) are areas usually located in or near customs ports of entry and legally outside the customs territory of the United States. Foreign goods brought into these zones may be stored, broken up, sorted, or otherwise manipulated or manufac­tured. While these operations are conducted, duty payments are delayed until the products officially enter into the customs territory.

Merchandise may be admitted into an FTZ upon issuance of a permit by the district direc­tor, unless the merchandise is brought in solely for manipulation after entry, is transiting the FTZ (for which a permit is granted), or is domestic merchandise.

FTZs are operated as public utilities under the supervision of the Foreign Trade Zones Board, which is authorized to grant the privilege of establishing a zone. Regulations are is­sued by the board covering the establishment and operation of FTZs. The board, which is composed of the U.S. secretary of commerce (chairperson), the secretary of the Treasury,
and the secretary of the Army, evaluates applications by public and private corporations for a zone on the basis of the following criteria: the need for zone services in the area, suit­ability of the site and facilities, justification in support of a zone, extent of state and local government support, views of persons or firms to be affected, as well as regulatory policy and other applicable economic criteria. The board also accepts applications for subzones, that is, special-purpose zones established as adjuncts to a zone for a limited purpose. Such zones are single-user facilities, usually accommodating the manufacturing operations of an individual firm at its plant. Every port of entry is entitled to at least one FTZ (Rossides, 1986; U.S. Department of Commerce, 1998, 2003).

Economic Advantages

  • Merchandise admitted into the zone is not subject to customs duty until it is admit­ted into the customs territory. There is no time limit on the storage or handling of the merchandise within the zone.
  • Businesses can import a product subject to a high rate of duty and manipulate and manufacture it into a final product that is classified under a lower rate of duty when imported into the customs territory. Importers can also bring in products for display to wholesalers or items restricted under a quota until the next quota period. A quota item may also be transformed in an FTZ into an item that can be freely imported without quota restrictions.
  • The importer can establish the duty of foreign merchandise when entered into a zone by applying for a “privileged status” Under this scheme, only the duty previously fixed is pay­able upon entry of the merchandise into the customs territory at a later date even though its conditions may have changed or resulted in an article subject to a higher rate of duty.
  • Duties are paid only on the actual quantity of such foreign goods incorporated in mer­chandise transferred from a zone of entry into the customs territory. This means that allowances are made for any unrecoverable waste resulting from manufacture or ma­nipulation, thereby limiting the duty to articles actually entered. Savings in duties and taxes may thus result from moisture taken out or dirt removed, and so on. It may also be possible to achieve savings in shipping and taxes by shipping unassembled parts into a zone for assembly.
  • Merchandise may be remarked or reconditioned to conform to certain requirements for entry into the customs territory.

The popularity of FTZs has grown not only in the United States but also in different parts of the world. By 1998, the number of such zones in the Unites States exceeded 200. Similar growth in the number of FTZs is observed in Africa, Asia, and Eastern Europe. A substantial part of the merchandise (more than 80 percent) entered under FTZs in the United States is imported into the United States for domestic consumption, while the rest is exported to foreign markets.

3. Bonded Warehouses

Bonded warehouses are secured, warehouse facilities approved by U.S. Customs and Bor­der Protection in which imported goods are stored or manipulated without paying duty until the goods are removed and entered for consumption. Duty is not payable when goods under bond are exported, destroyed under customs supervision, or withdrawn as supplies for vessel or aircraft. Merchandise may be kept in the warehouse for up to five years from the date of importation. The advantages of a bonded warehouse are quite similar to those of FTZs.

Any person desiring to establish a bonded warehouse must submit an application to the district director where the facility is located. When the application is approved, a bond is executed to protect the duty liability. Customs regulations provide for different types of bonded warehouses.

The major differences between a bonded warehouse and an FTZ are as follows: (1) costs for the use of bonded warehouses are generally less than for FTZs; (2) bonded warehouses may be established on a user’s facilities and with less difficulty than an FTZs; and (3) the permitted types of manipulation are more limited for a bonded warehouse than for an FTZ. For example, goods may be stored or otherwise manipulated in a bonded warehouse as long as the process does not involve manufacturing. The assembly of watch heads by combined domestic and foreign components is a manufacture (not a manipulation) prohibited under customs regulations. However, the repackaging of spare watch parts is a manipulation that is allowable.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

 

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