You're Wrong If You Think You Don't Have To Worry About Assists Just Because You Didn't "Enter" the Imported Merchandise

Importers must report assists on their imported merchandise. It's not only that importers may have to eventually pay back duties owed to U.S. Customs and Border Protection (CBP) on their undervalued merchandise, but the real hassle comes from the fines and penalties and the added scrutiny from CBP.

The alarming thing is that you can be tagged with liability even if you do not strictly enter the merchandise, but merely introduce. Let me explain.

The US Court of the Appeals for the Federal Circuit just decided US vs. Trek Leather.  The US Government had sued and won a judgment in the US Court of International Trade against the importer of men's suits for $45,245.39 in unpaid duties and $534,420.32 in penalties and interest. Most small importers would find it hard enough to come up with the $45K, but half a million dollars? Not even bankruptcy, which frowns upon debtors who owe customs duties and penalties, may be much of a haven.  

The importer provided fabric to the manufacturer of the suits free of charge or at a reduced costs.  These were the assists. Importers often find it hard to grasp why assists are important or even what they are. The US Court of the Appeals for the Federal Circuit clarifies what was at stake:

By providing the manufacturer free or subsidized components, like the "fabric assists" here, an importer reduces the manufacturer's costs, and the manufacturer may then reduce the price it charges for the merchandise once manufactured. A suit maker, if it obtains its fabric for free, might shave $100 off the price it charges for a suit. In this case, "[t]he material assists . . . were not part of the price actually paid or payable to the foreign manufacturers of the imported apparel." In such circumstances, the manufacturer's invoice price understates the actual value of the merchandise, and if the artificially low invoice price is used as the merchandise's value when calculating customs duties based on value, disregarding assists results in understating the duties owed. To address such an artificial reduction of customs duties, the statute and regulations expressly require that the value of an "assist" be incorporated in specified circumstances into the calculated value of imported merchandise used for determining the duties owed.

In affirming the judgment against the importer, the US Court of the Appeals for the Federal Circuit reminded the trade community that liability for accurately reporting assists applies not just to the individuals and companies who enter the merchandise, but equally to those who introduce it. What's the difference? Here again is the court:

Panama Hats confirms that, whatever the full scope of "enter" may be, "introduce" in section 1592(a)(1)(A) means that the statute is broad enough to reach acts beyond the act of filing with customs officials papers that "enter" goods into United States commerce. Panama Hats establishes that "introduce" is a flexible and broad term added to ensure that the statute was not restricted to the "technical" process of "entering" goods. It is broad enough to cover, among other things, actions completed before any formal entry filings made to effectuate release of imported goods. We need not attempt to define the reach of the term. Under the rationale of Panama Hats, the term covers actions that bring goods to the threshold of the process of entry by moving goods into CBP custody in the United States and providing critical documents (such as invoices indicating value) for use in the filing of papers for a contemplated release into United States commerce even if no release ever occurs.

What Mr. Shadadpuri did comes within the common sense, flexible understanding of the "introduce" language of section 1592(a)(1)(A). He "imported men's suits through one or more of his companies." Gov't Facts at 1. While suits invoiced to one company were in transit, he "caused the shipments of the imported merchandise to be transferred" to Trek by "direct[ing]" the customs broker to make the transfer. Himself and through his aides, he sent manufacturers' invoices to the customs broker for the broker's use in completing the entry filings to secure release of the merchandise from CBP custody into United States commerce. By this activity, he did everything short of the final step of pre- paring the CBP Form 7501s and submitting them and other required papers to make formal entry. He thereby "introduced" the suits into United States commerce.

Assists tend to be overlooked by importers, but the federal courts are clearly expanding liability for improper reporting of assists. It's time to sit up and pay attention.

Need more information on CUSTOMS ASSISTS? Attend our webinar on Customs Assists, November 10, 2014.