New CPSIA Lead Content Limits Announced

Effective Date: August 14, 2011

Starting next month, importers, manufacturers, retailers and distributors of children’s products will be required to certify that their products conform to the Consumer Product Safety Improvement Act’s (CPSIA) requirement that children’s products contain no more than 100 ppm of total lead content.

Testing must be undertaken by a third party test lab which is certified by the Consumer Product Safety Commission, and lists of approved testing companies is available on its website here.

Both the testing of, and compliance with, these federal guidelines with respect to inaccessible internal parts of children’s products and certain component parts of children’s electronic devices are not mandated under this new rule.

This requirement is not to be confused however, with the levels set for lead paint or other surface coatings placed on children’s products. That limit of a total lead level of .009% remains the same as it has been the case since August 14, 2009.

Through the CPSIA, Congress seeks to reduce the exposure to lead on children 12 years of age and under, as lead is a heavy metal that is especially toxic to children. It has been associated with causing brain damage, hearing impairment, lowered learning levels, and at high levels can be fatal.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Determining the Value on an Importation Between Related Parties – Was There a Bonafide Sale?

US Customs collects duties on all imports that enter the U.S. As a general rule, Customs presumes that the price paid by the importer, which is typically the invoice total, is the appropriate basis for determining the import’s “transaction value” which in everyday language, essentially means, the amount upon which the duty to be paid will be calculated.

Customs generally presumes that a transaction between unrelated parties is conducted at “arm’s length.” This means that the price offered by a seller of goods is a “fair” price and not one offered under more favorable terms, i.e., a lower price, which would cause the amount of duty paid on an importation to be less than what would otherwise be under a “fair” price.

Questions arise however, in the case of related party transactions, as from US Customs point of view, it would not be unusual to give a related company what it would consider a preferred, i.e., cheaper price on goods.

There are 2 ways Customs determines if a bonafide sale took place –

(a) the sales transaction was conducted at arm’s length, or

(b) transaction details show that there were no non-market influences that affected the legitimacy of the sales price.

As the term “sale” has not been defined by Customs, it has relied upon the definition as articulated in J.L. Wood v. United States, 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974) which defines it as the transfer of property taken from one party to another for consideration.

In general, for all sales whether between related or unrelated parties, Customs will look at a number of factors in its determination of a legitimate sales price, in addition to looking at the circumstances of a transaction as a whole. Specifically, Customs looks to the documents related to the sales transaction, including the shipping terms, in order to determine the following factors:

a. Whether the potential buyer has assumed the risk of loss

b. Whether the potential buyer acquired title to the imported merchandise

c. Whether the alleged buyer paid for the goods

d. Whether such payments are linked to specific importations of merchandise

e. Whether the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

Even where the parties are related, Customs Regulations provide a series of scenarios in which it can be shown that the price has not been influenced by the relationship of the parties. These include:

a) If it is shown that the buyer and seller buy and sell from each another as if they are not related, this indicates that the price is not influenced by the relationship between the parties and appraisement pursuant to transaction value is valid.

b) Where the price has been settled in a manner consistent with the normal pricing practice of the industry, or with the way the seller settles prices for sales to unrelated buyers, then it is considered not to have been influenced by the relationship between the parties.

c) If it is shown that the price is adequate to ensure recovery of all costs plus a profit which is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind, this would demonstrate that the price has not been influenced.

There are further conditions as well, such as whether or not the potential buyer has assumed risk of loss for the cargo, which play a persuasive role in US Customs reasoning as to whether a bonafide sale took place.

Needless to say, the valuation of merchandise, especially when it comes to related party transactions can be tricky.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Shoes and Pricing - A Factor You Probably Never Thought About

Ever wonder why a plain looking pair of shoes cost more than the fancier looking one? Is it that the “no-frills” sandal offers a more “classic” and “elegant” look than the decorative one?

Well… not necessarily… Oddly enough, depending on the classification, i.e., the tariff number, of the shoe in question, the duty rate can go from a mere six percent (6%) to that of thirty-seven point five percent (37.5%) (and this is the rate for imports from countries that we have good trade relations with - it is 66% if being imported from others – ouch!)

On a $100 pair of shoes, that is the difference in the shoe costing $106 versus $137, which as an aside, can really add up given that here in NYC, we used to have a provision on apparel that it was tax-free so long as it was under $110.

That means that a pair of shoes for $106 really did cost that much, so just escaping having to pay tax made a difference. While a $25 difference in price may not break the bank however, the shoe at $137 really translates into a total cost of nearly $149 once you add on the tax.

Simply put, importing a shoe with a lower duty rate is better for both the importer (greater chance of selling the shoe) and the consumer (cheaper price – you hope anyway!)

So why would a plain sandal cost less anyway?

This is because while the material of a shoe, i.e., of leather, versus plastic, or a rubber/plastic combination, etc., plays a role in determining its tariff classification and the rate of duty, so does the amount of this material across the surface area of the “upper” part of the shoe, which in everyday language means, the top part of the shoe, for all intents and purposes.

US Customs measures the external surface area of the upper as the surface you see covering the foot when the shoe is worn. [US Customs Treasury Decision (T.D. 93-88)]

In general, the external surface area of the upper (ESAU) for footwear classification is taken to be the constituent material having the greatest external surface area, no account being taken of accessories or reinforcements such as ankle patches, edging, ornamentation, buckles, tabs, eyelet stays or similar attachments. [Chapter 64, Note 4(a) of HTSUS]

Many factors are considered when making an ESAU determination for footwear with uppers consisting of different materials. [NY J81564, 3/26/03] For example, the type and construction of the shoe, the completeness and visibility of the materials, its plausibility, and the manner in which ornaments are attached, are among the considerations to be weighed. [NY J81564, 3/26/03]

Customs has found that in the case of footwear for which the upper consists of two or more materials, where a material clearly constitutes a significant portion of the ESAU, then it is considered more than a mere accessory or reinforcement. [HQ 085381, 11/21/89]

Customs has further found that when material in the upper is neither an accessory nor reinforcement, it is considered a part of the constituent material of the upper external area. [HQ 081646, 3/27/89]

All of these factors can lead Customs to conclude that footwear is correctly classified under the tariff number that corresponds to a high rate of duty.

Questions/comments? Post below or email me at clark.deanna@gmail.com