Attention Importers: Pending Rulings Poised to Raise Costs for U.S. Companies

By Mike Zachary
Senior VP, Global Supply Chain Services
Tompkins Associates

Two very significant proposed rulings on imports will have major implications for companies importing goods into the United States. The Notices of Proposed Rule Making (NPRMs) were discussed at the February 13, 2008 meeting of the Department of Homeland Security’s Commercial Operations Advisory Committee (COAC). They are the NPRM for "First Sale" and the NPRM for Importer Security Filing Requirements (commonly referred to as "10+2").

At the COAC meeting, Ralph Basham, Commissioner of Customs and Border Protection (CBP), expressed surprise at the lack of comment from U.S. industry on the proposed changes. Both of these NPRMs have been published in the Federal Register, but we believe that it is important to bring them to your attention so that you may fully understand the impact and have an opportunity to respond -- either directly to CBP or through your trade association.

Additional Security Filing Requirements: 10+2

With customs and security issues at the forefront of U.S. policymaking today, it is not unexpected that the government proposes that businesses and carriers provide more information on imports. The big surprise for many importers, however, comes when they realize that providing these additional data elements may be costly and time-consuming.

The requirements and methods involved with providing additional data will present a problem for some companies and their carriers. In many cases, complying with this rule would require a complete reprogramming of company data systems. Each importer and shipper should examine the 10+2 proposed rule from their individual perspective and determine the effect additional security filing requirements will have on their operations.

The CBP recently extended the public comment period for the "10+2" NPRM to March 18, 2008. COAC, representing the shipper, carrier and logistics industries, has filed a formal resolution with CBP and the Department of Homeland Security indicating COAC’s concern but tentative support for the implementation of "10+2". The key concern here is how you would implement, with your logistics and IT systems, the informational data requirements identified and at what costs to you, the importer.

Change in Duty Charges: First Sale

The First Sale NPRM will impact customs and duties paid in the future and requires knowledge of some little known (outside of the import world) facts. Basically, CBP wants to change the way they charge duty for imports from what was known as "the first sale of the item" to final delivered costs, or "last sale of the item" (less transportation costs). This is key -- especially when components or sub-vendors are involved in the process as the impact of their "value-added" gets added onto the base cost of the item for determination of duties and taxes.

According to American Shipper magazine, the law firm of Sandler, Travis & Rosenberg has said the change in First Sale could cause tariffs to rise 8 to 15 percent and cost companies millions of dollars. Trade professionals predict importers will have to reevaluate their cost structures for sourcing products from foreign countries. The repeal of the First Sale method would also impact non-resident importers who sell to U.S. buyers and multinationals that engage in transfer pricing among their global subsidiaries to reduce their tax burden.

CBP has extended the comment period on the First Sale NPRM until mid-April, and we encourage you to evaluate the impact these changes in importing goods will have on your bottom line.

To ensure that your company’s interests are protected, it is important to review and fully grasp what each NPRM is proposing, as well as the ultimate requirements that will fall upon each company as a result of the implementation of these rules. Please review the Federal Register notices at the links below, and if you have further questions or would like assistance in filing a public response, please contact me at 206-243-0788 or mzachary@tompkinsinc.com.