Valuation. A Potentially Complex Question for Which Few Answers May be Found

Knowing what I know now about the complexities of valuation, it struck me as odd that the US Customs booklet regarding value is only 20 pages – cover to cover. Substantively, we're talking only 10 pages (p. 7 to 16). Hmm...

Having directed many an intern to the publication, entitled “Customs Value,” while I recognize that it provides an (extremely) brief overview of valuation, which makes it fitting for an intern, its intended purpose of “clearly and completely informing” the trade community is lacking.

Fortunately, though not updated in over 5 years, Customs does have another publication from 2004 entitled the "Customs Valuation Encyclopedia."

Importers want to comply with Customs regulations and operate in an importing environment that is compliant with the government's mandates. Without clear information however, it is hard to imagine how the mandates of “informed compliance” and “shared responsibility” - two concepts that were put forth in the “Customs Modernization Act” (Pub. L. 103-182, 107 Stat. 2057) and regularly touted by Customs when its alleging negligence or some form of wrongdoing against a party – can be fulfilled when the information to the trade community on complex subjects like valuation is so out of date.

So what is valuation? Generally speaking, as I explained in an earlier post, when goods are imported to the U.S., certain information must be provided to Customs regarding the type of import, its quantity, price, etc., in order to be “entered.” Goods are classified according to type and have a corresponding rate of duty, which is applied across the quantity of the import, rendering what is known as an “appraised value,” and payment is made in this amount to Customs.

All imports are subject to appraisement, the rules for which are codified at 19 USC §1401a, et seq.

The Act sets forth six different methods of appraisement, and their order of preference. Under the Act, the preferred method of appraisement is “transaction value.” Generally, the appraised value of all merchandise imported into the United States is the transaction value of the goods. In the event the merchandise cannot be appraised on the basis of transaction value, the secondary bases are considered in the following order :

- Transaction Value of Identical Merchandise
- Transaction Value of Similar Merchandise
- Deductive Value
- Computed Value
- Values if Other Values Cannot be Determined

Under 19 USC 1401a(b)(1), transaction value is “the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to:
A. The packing costs incurred by the buyer.
B. Any selling commission incurred by the buyer.
C. The value, apportioned as appropriate, of any assist.
D. Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale.
E. The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.

Keep in mind that the factors listed in points A – D are only added when it is not already included in the price and where the amounts can be accurately established.

While the statute appears at first glance to be straightforward, there are applications of this objective definition arising from variations on business transactions which lead to subjective determinations by Customs, which applies its own interpretation of the statutes based on its own regulations found in Chapter 19 of the Code of Federal Regulations Part 152, entitled Classification and Appraisement of Merchandise, and specifically regarding valuation in Subpart E of Part 152 at 19 CFR Part 152.100 to 152.108.

Not only that, but where the parties are related, greater scrutiny (and subjectivity) on the part of Customs is applied in order to “ensure” that the transaction between the parties was an arm's length one, for which the price was unaffected. That is, transaction value may be used as the preferred method of appraisement for related party transactions where it can be shown that the relationship did not influence the price.

To determine this, an examination of whether the transaction between related parties meets either a “circumstances of the sale” or “test values” test must be undertaken. More information on related party pricing can be found in Customs informed compliance publication entitled, “Determining the Acceptability of Transaction Value for Related Party Transactions.”

Aside from being related, other complex questions come up where transaction value is not available for use as an appraisal method, and one of the subsequent bases is used.

What makes merchandise “identical?” Does it have to be exactly identical?

What is “similar” merchandise? How similar is "similar" anyway?

The answer to these questions is often times subjective for which an importer's determination differs from that of Customs. This can raise minor to significant problems for an importer.

Ever have a question raised about the declared value or method of appraisal of your imports? Unsure how to appraise your merchandise?

Questions/comments? Feel free to email me at clark.deanna@gmail.com

Retention of Export Information by a USPPI in a Routed Shipment

In a “routed shipment” the “authorized agent” is not required to give the U.S. Principal Party in Interest (USPPI) the export data. This data was formerly collected in a Shipper's Export Declaration (SED) and is now mandated to be filed through the Automated Export System (AES) or AESDirect. This raised the question of which records must be retained by a USPPI in a routed shipment.

A routed shipment occurs when there is a foreign buyer that makes a purchase from a domestic seller here in the U.S. Rather than have the domestic seller arrange for the transport of the goods to the foreign destination, the foreign buyer (aka, the "Foreign Principal Party in Interest" (FPPI)) finds its own U.S. agent to assist it with the export.

For this type of transaction, the FPPI authorizes a U.S. agent (Authorized Agent) to facilitate the export of items from the U.S. and prepare and file electronic export information (EEI). This electronic export data is filed in AES.

For a routed shipment, the USPPI must retain documentation to support the information provided to the Authoized Agent for preparing the EEI, and provide the agent with certain information to assist in preparing the EEI. This information includes:

(i) Name and address of the USPPI
(ii) USPPI's EIN or DUNS
(iii) State of origin (State)
(iv) FTZ if applicable
(v) Commercial description of commodities
(vi) Origin of goods indicator: Domestic (D) or Foreign (F)
(vii) Schedule B or HTSUSA, Classification Commodity Code
(viii) Quantities/units of measure
(ix) Value
(x) Export Control Classification Number (ECCN) or sufficient technical information to determine the ECCN
(xi) All licensing information necessary to file the EEI for commodities where the Department of State, the Department of Commerce, or other U.S. government agency issues a license for the commodities being exported, or the merchandise is being exported under a license exemption or license exception.
(xii) Any information that it knows will affect the determination of license authorization

The Authorized Agent in a Routed Transaction is responsible for filing the EEI accurately and timely and must retain the documentation to support the EEI reported through AES which includes the following data elements:

(i) Date of export.
(ii) Transportation Reference Number.
(iii) Ultimate consignee. (vii) Country of ultimate destination.
(viii) Method of transportation.
(ix) Carrier identification and conveyance name.
(x) Port of export.
(xi) Foreign port of unloading.
(xii) Shipping weight.
(xiii) ECCN.
(xiv) License or license exemption information.


These regulations provide that upon request, the Authorized Agent shall provide the USPPI with the data elements above.  The reality however, is that even upon repeated request, this information may never be received by the USPPI.

Therefore, under the regulations the USPPI may request a copy of the electronic record or submission from the U.S. Census Bureau. Keep in mind however, that the Census Bureau's retention and maintenance of AES records does not relieve filers from requirements.

Regarding records retention, a USPPI must retain documentation to support the information provided to the authorized agent for filing the EEI when it has authorized an agent to file the EEI on its behalf.

Questions or comments? Feel free to email me at clark.deanna@gmail.com

Made in Taiwan? Turns Out Taiwan is a Hub of Bicycle Manufacturing

The most fascinating conversation I've had regarding international trade so far was with my flight companion who landed himself two seats away from me (literally). As there was no escaping me, we chatted throughout our long haul flight during which time he explained why he was en route to Taiwan. It turns out that Taiwan is a major player in bicycle manufacturing and he's a big wig at a high end bike company (prices range from the $400s to nearly $14K – yowzers!)

As he's done for a number of years, each Fall he travels to a town about an hour away from Taipei for two weeks – every two weeks – in order to sort out the logistics in terms of bicycle production planning. These meetings occur in the Fall because bicycles are a “recreation business” and therefore, planning needs to be finalized this time of year so that the new model can hit the stores right before the peak sales period which is during the summer months.

I wanted to know more about how decisions were made with respect to sales forecasts and price determinations. He explained to me the following.

The forecast is largely based on:

1)The sales history of a comparable prior product
2)The results from a poll of the sales force (via questionnaire), and
3)New features in relation to a proposed price, which is likewise analyzed with the sales force for their input on what can be sold (quantity-wise) and at what price point.

In determining a price, fact based costs are considered, such as raw materials, quotes from assemblers, and the rate of duty (which, though unverified by me, is apparently determined by characteristics of the wheels/tires interestingly enough.) Also considered is the profit margin in relation to the competition.

His tasks in Taiwan therefore, some of them anyway, are to identify material vendors, negotiate component prices with suppliers, and negotiate figures on the labor costs for assembling these parts.

Based on all of the above, the company will place 60 to 70% of its forecasted sales in its first purchase order. Thereafter, based on sales and "sales run" numbers, a decision will be made as to whether or not more will be ordered.

It is not often that I hear about production planning or sourcing though I would enjoy hearing more stories about it. Got a story for me? Post a comment below or email me at clark.deanna@gmail.com.

Business or Pleasure? The Combination Found in Asia

Traveling to Asia has definitely not been my run of the mill journey to say, a European country. Rather than more vacationers or students, the Americans I've run into are here for business like myself.

Take the gentlemen I met yesterday upon returning from a day trip to Macau (pleasure). They're here to find sources to manufacture a “tape gun” in China (business) and will be visiting factories over the next few days which have been found by their agent, Patrick.

I had the opportunity to pick Patrick's brain about buying agents and sourcing, as he took me on the Hong Kong subway back to the vicinity of my hotel (I sort of got lost). His company sources a range of products from hangers to machine components to well, tape gun parts. Whatever the client is seeking, he attempts to connect them with a supplier.

As an aside, having told them what I did for a living, one of the guys asked me about the use of the word "gun" in the name with respect to border issues. I suggested he consider using a different word and talk it over with his marketing department to determine other salesworthy names for the product. I explained that US Customs has been hiring new people (translation: inexperienced) and that anything that can be done to avoid having their shipment flagged would make their importations enter more smoothly.

Coming back to my discussion with Patrick, though short, I found it to be a pretty interesting conversation. Connecting foreign vendors of goods with manufacturing sources in China is a much bigger business than I'd imagined. It's huge! I also was under the impression that sourcing companies focused on a particular industry, such as apparel, so it was interesting to hear from someone in the business that it isn't necessarily limited to a narrow scope.

So how do we got the point where a company that creates a product is actually looking for suppliers to build it? Check out my next post that discusses production planning.

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

OWIT-NY 2009 Holiday Party

As Vice-President of the NY Chapter of the Organization of Women in International Trade, I'm pleased to announce our upcoming holiday party.

Members of the New York Chapter are part of a worldwide network of more than 3,000 professionals whose involvements in OWIT enhance their knowledge of current global trade issues.

Hope you can make it!

Date: Tuesday, December 8, 2009
Time: 6:00 pm – 8:00 pm
Place: Investment & Trade Office of the Taipei Economic and Cultural Representative Office in the United States
1 East 42nd Street
New York, NY 10017

Cost:
$20.00 OWIT-NY members
$25.00 non-members

Price includes catered food from Evergreen Restaurant, wine, beer and soft drinks.

All participants will be entered into a drawing for a set of Tiffany goblets.

In the spirit of the holiday, the evening will include a brief introduction to the international charity work of Handcrafting Justice which is a Fair Trade, economic justice project that partners with women in developing countries. They market women’s handcrafts and raise awareness about the root causes of poverty, gender inequality and social issues. A representation of these goods will be available for sale throughout the evening.

Register online or send a check to:
OWIT-NY
P.O. Box 68
Grand Central Station
New York, NY 10163

Chemistry Lands the Job

At last week’s lecture at Queensborough Community College, many students expressed a lack of knowledge as to actual jobs within the International Trade arena and wanted to learn more about how to get one.

Keep in mind that irrespective of your experience, it will be your personality and ability to convey the message that you have a good attitude, are flexible/work well with others, and want to contribute to meeting the goals of the organization that will ultimately get you that job offer. That is, do you have chemistry with the interviewer and potentially with the company (or the department, anyway) as a whole?

Whether dealing with imports or exports, and irrespective of the industry be it apparel, pharmaceuticals, or otherwise, professionals under the international trade umbrella largely seek opportunities in the areas of

Planning and forecasting
Supply chain management
Logistics and transportation
Trade compliance
Sales
Marketing
Accounting

So where do you look for these jobs?

If you know of companies you are interested in, or come across a job listing on www.monster.com that peaks your interest, go directly to its website to read its listings.

Where you do not know the names of companies but have a particular sector in mind that you want to find work in, websites like www.hoovers.com, have listings by industry of companies. For example, going from the “Industry Overviews” tab (listed on the left hand side under “Hoover’s Directories”), clicking on the “Beverages” industry tab, and then clicking on “winemakers” specifically, will lead you to a listing of the most viewed winemaker companies, and from there you can search those individual wine websites for job listings.

Hoovers also has a link to news and press releases by these companies. Learning more about a company will help you in both tailoring your resume and cover letter (and you always want to send both), as well as performing during an interview.

These news pieces can also provide you with the name of the author, and if you like what they have written about, you can likely find them on websites like www.LinkedIn.com and make direct contact with them, perhaps even complementing them on their ideas in the article.

Different online newspapers offer an ability to search by keyword, such as the New York Times, and others, like the Washington Post, allow you to search by sector.

Dues paying membership organizations with a particular focus, such as the Organization of Women in International Trade (OWIT-NY), have job listings around the globe (student membership is $25).

Ethnic based organizations such as Asian Women in Business, also have resources for job seekers as well as other benefits such as their scholarship program for current undergraduate students.

Attending events put on by these groups can also lead to making contacts and ultimately landing a job. Recently, a connection I personally made at an OWIT-NY event led to employment for a new member.

Some cities have assistance for jobseekers, helping them with career counseling, technical and educational services, and workshops. These services and more for example, are offered by the New York City Small Business Services Dept.

For more experienced workers, placement agencies like Tyler Search Consultants, which caters specifically to trade professionals, can be a great resource. Their website has many useful articles and tips on how to find employment for both the experienced and novice jobseeker. It is well worth checking out.

As for your resume, it is not uncommon for human resources to simply perform a word search in order to sort through the multitude of resumes that are electronically received (via email) for a particular job, and to find appropriate candidates flagged through a narrow search like this.

This means it is critical that important key words like “import” or “export” are specifically included. If you worked in a particular country, state it. If you have experience say, with the Maquiladoras, state it. If you managed people, state it and say how many you managed.

Be clear in your language and be dynamic. If you have experience covering the sales floor on your own, don’t merely write in your resume that you “managed the floor by cleaning or just watching the floor when I’m alone.” Rather, express your sole oversight of the sales floor and how you effectively managed the sales and maintenance functions required.

Questions you will want to ask on your interview include:

1. What makes this a great job and opportunity?
2. Why is your company a great one to be a part of?
3. What makes you a great manager/mentor to work for?
4. What are your expectations of a new hire? What are they in 6 months? 1 year? 2 years?

If you’re a student with little experience, take what salary the company offers you. You have little to no bargaining power if you are not currently drawing a salary. If you have a certain requirement you want met, put it in your cover letter or the accompanying email and state it up front. Don’t bother making up an artificial number, as the company will already know what the average salaries are.

Hope this helps!

Questions/comments? Feel free to email me at clark.deanna@gmail.com

Introducing Students to International Trade at Queensborough Community College

This week I had the pleasure of giving a lecture to Business students at Queensborough Community College (QCC) on International Trade. “The conversation about how the things are shipped to stores,” was the best part about the presentation to QCC student, Prince Oparaji. The first activity we did was a collective diagramming of an importation, from the overseas factory to the store, an idea I might add, was given to me by the Senior Partner in my office, William Shayne, Esq.

"I really love the fact that she explained the supply chain management in a clear and easy way. It was a great presentation."

My goal for the presentation was to illustrate to students the relatively complex movement of cargo from overseas to the U.S. I wanted to introduce the students to the players involved in shipping, such as:

Ocean Freight forwarder (1 of 2 “Ocean Transportation Intermediaries”) – in the United States, dispatches shipments from the United States via a common carrier and books or otherwise arranges space for those shipments on behalf of shippers; and processes the documentation or performs related activities incident to those shipments

Non-Vessel Operating Common Carrier (2 of 2 “Ocean Transportation Intermediaries”) – a common carrier that does not operate the vessels by which the ocean transportation is provided, and is a shipper in its relationship with an ocean common carrier

Vessel Operating Common Carrier – An ocean common carrier

[the above are defined in The Shipping Act of 1984, 46 USC §1701 et. seq.]

Customs Broker - Customs brokers are private individuals, partnerships, associations or corporations licensed, regulated and empowered by U.S. Customs to assist importers and exporters in meeting Federal requirements governing imports and exports. Brokers submit necessary information and appropriate payments to CBP on behalf of their clients and charge them a fee for this service. [defined by US Customs and Border Protection]

and to get them thinking about the pre-entry requirements, border issues and other liabilities involved with importing certain goods.

"I think it was very well presented, very detailed."

In order to do this, I had a number of items on display that I passed around to students to demonstrate which issues may be raised. A few examples of this included:

1) bracelets - permanently stamped with the word “Mexico” on the inner band (country of origin issue),

2) ceramic cup and banana – believe it or not, a container load of either of these may have enough radiation in them to set off the radiation detection devices set up at the terminal exit of all piers (security of US/weapons of mass destruction issue) - don't worry, in smaller quantities they are not harmful. If they were, they would not be admitted into the US for consumption!

3) legos® – pre-importation certificate of conformity requirements with the Consumer Safety Product Commission (children’s safety and small parts issue)

Following the lecture, I asked students what more they would have liked to have learned about. Each of the topics raised could easily be a multi-day course in and of itself. In future posts however, I will try to address them as it is good review for me as well.

- Rules for importing a product
- Where to get more information
- Career steps to take in direction of working in international trade/how I obtained my job
- Specifics on the tariff (HTSUS)

Questions/comments? Feel free to email me at clark.deanna@gmail.com