Container Security Devices and Their Tariff Treatment
Op Ed by Dr. Jim Giermanski
Take HTSUS 9803.00.50 and subtract HTSUS 8526.91. Then add 19 U.S.C 1322(a) to 19 U.S.C 1041.a. from which you subtract the sum of the first HTSUS computation. Now divide HQ044900 by HQ116684. Take the quotient and multiply it by 10.41a(a)(2) from which you subtract your social security number. Now you know the Mexican Customs treatment of Container Security Devices (CSDs) used in containers that are Instruments of International Traffic.(1)
Now that I have your attention, you should not take my word only on this subject since I'm not an expert in this area, nor a licensed U.S. Customs Broker. Instead, I hope the reader uses this analysis as a basis for discussing the tariff treatment of container security devices (CSDs) with Customs officials, a practicing U.S. Customs Broker, or a lawyer involved in Customs matters. In many ways, the issue is quite clear, except in North America.
Customs Convention on Containers, 1972
The definitive international guidance and basis for CBP decisions on this question is provided by the Customs Convention on Containers (CCC) of 1972. The Customs Convention on Container of 1972, went into effect in 1975 terminating and replacing the 1956 Container Convention and set new rules for the treatment of containers moving in global commerce. The CCC became the worldwide standard for the Customs treatment of containers by those nations, signing, ratifying, accepting or adhering to it. Additionally, and without any attention in doing so, the CCC is very specific with respect to signaling the tariff treatment of CSDs well before CSDs were manufactured and utilized. The obvious rationale for a treaty on containers is for nations to be consistent in their definition and treatment of containers as the instruments that merely carry the goods to a nation, not to be classified or entered as products themselves into the domestic commerce of that nation to which they merely carry the cargo.
Article 1, Section C, of the CCC defines a container:
the term "container" shall mean an article of transport equipment (lift-van, movable tank or other similar structure);
(i) fully or partially enclosed to constitute a compartment intended for containing
goods;
(ii) of a permanent character and accordingly strong enough to be suitable for
repeated use;
(iii) specially designed to facilitate the carriage of goods, by one or more modes
of transport, without intermediate reloading;
(iv) designed for ready handling, particularly when being transferred from one
mode of transport to another;
(v) designed to be easy to fill and to empty; and
(vi) having an internal volume of one cubic metre or more;
It also defines indirectly a CSD which is a part of the in-bound container:
the term "container" shall include the accessories and equipment of the container, appropriate for the type concerned, provided that such accessories and equipment are carried with the container. The term "container" shall not include vehicles, accessories or spare parts of vehicles, or packaging. Demountable bodies, are to be treated as containers;... (2)
Article 10, paragraph 1, also discloses that: Temporary admission shall be granted to component parts intended for the repair of temporarily admitted containers (3). Containers, then, as defined by the CCC are un-motorized holders of substantial cargo. In the United States containers are specified as Instruments of International Traffic (IIT) by the Department of Homeland Security (DHS) which uses the CCC as its source and basis for this classification. However, each nation can include other definitions of containers and still be consistent with the CCC. In fact, the Secretary of the Department of Homeland Security may except the applications of Customs law on ...Lift vans, cargo vans, shipping tanks, skids, pallets, caul board, and cores for textile fabrics... which have all been ...explicitly classified as Instruments of International Traffic (4). CSDs, however, although not classified as IITs, can be classified as accessories of IIT's.
Furthermore, Article 11, of the Customs Convention on Containers allows products like CSDS to be admitted separately as a container accessory as long as it is to be used on an inbound container or an outbound container in international commerce:
The Contracting Parties agree to grant temporary admission to accessories and equipment of temporarily admitted containers, which are either imported with a container to be re-exported separately or with another container, or imported separately to be re-exported with a container (5).
CBP cites the CCC in its Headquarter Rulings regarding CSDs as a container accessory. In the United States, then, there is precedent for the classifying of CSDs for special Customs treatment. Therefore, firms typically ask for clarification from CBP through what is known as a binding ruling to protect themselves from subsequent Customs decisions that would later classify the CSD in a way that would make it dutiable retroactively. Two such rulings again clarify the appropriate treatment of CSDs in relation to Instruments of International Traffic: the IBM case in 2007, and the Bose Corporation case in 2008.
U.S. Government Rulings Regarding IITs
IBM's attempted to obtain a reconsideration of a CBP decision which IBM felt was an inappropriate tariff treatment of its imported Tamper-Resistant Embedded Controller (TREC), which is ...an enhanced container security, monitoring and tracking device which when installed, collects, analyzes and reports data as to the status, condition and location of the container and its contents (6). Headquarters confirmed the original CBP decision that the imported TRECs were subject to declaration and entry filings unless they were attached to and imported as part of the container which is defined in the CCC as declared in CBP Headquarters Ruling Letter 116684 of August 2006. In short, the Ruling stated that if the container meets the standard as an Instrument of International Traffic, and the TREC is attached to the container as a "container accessory," the device is free from separate entry declaration. However, TRECs are not IITs and importing them for entry into the commerce of the United States would subject them to tariff treatment.
In the case of Bose in 2008, Bose asked that its PT100-C Tracker using GPS satellite technology and employed in its containers carrying Bose products produced around the world be considered as Instruments of International Traffic and not subject to duties since the PT100-C Tracker was an accessory of a shipping container which is already designated as an Instrument of International Traffic by CCC and DHS Headquarters. In this case, CBP made it very clear that PT 100-C tracking devices constitute accessories or equipment of instruments of international traffic pursuant to 19 C.F.R. § 10.41a(a)(3) and are therefore designated as instruments of international traffic pursuant to 19 C.F.R. § 10.41a(a)1 (7). However it noted that CSDs not attached to the container cannot be classified as an IIT. Mexican treatment, however, is still unclear.
Treatment within the North American Free Trade Agreement(NAFTA)
With respect to North America, the United States and Canada are original signatories and each ratified this convention, Canada in 1975, and the U.S. in 1984 (8). Mexico has not. That doesn't mean that Mexico cannot accept or apply CCC standards. Mexico can if it so chooses. However, often firms that are now beginning to use these CSDs are concerned about how Mexican Customs (Aduana) will treat the CSD with respect to tariff classification and duties given that NAFTA generates significant trade. And that trade volume also suggests linked security questions. NAFTA has no reference to tariff treatment of IITs. In fact, the tariff schedules of the United States, Canada, and Mexico constitute three separate volumes of the agreement. The commonality of Customs process among the three nations is linked to the World Customs Organization standards and to other treaties into which all three nations have entered. This means that while the United States and Canada are signatories and follow the Articles of the Customs Convention on Containers, Mexico has not ratified, or accepted the CCC , Mexico is not compelled to follow its guidelines. Therefore, while IITs are treated similarly in both Canada and the United States, they are not treated the same way by Aduana.
Attempts have been made to obtain the official guidelines from Mexico regarding the Customs treatment of IITs without success. However, opinions from respected Mexican Customs Brokers suggest that IIT tariff treatment is similar. As long as the CSD is attached to the container for use as a container monitoring and security accessory, it will not be subject to duties. One Broker's opinion is:
In theory if the device is attached to the trailer from my perspective IT will not have to [be] declared independently for it is a part of the trailer’s security overall devices and thus it is not to be used for any other purpose but to bring security to the products contained inside of the cargo bay….if it is by itself then it will have to be declared and potentially pay duties and taxes and I say potentially for if the importer has a temporary import scheme in place then these duties could be evaded...
Another Mexican Broker's opinion is this:
The short of it is that for MX Customs Purposes and the Commercial Cargo, there is no declaration, BUT for MX Customs for the Temporary Bond that the Mx Carrier will post, the GPS equipment will be listed on there as part of the Container/Van. That way when the trailer is returned to the USA and the bond is cancelled on Mx Export side, the GPS unit will show up and the bond will be cancelled with the GPS unit by the MX Carrier with MX Customs.
Again, the GPS unit has nothing to do with the admissibility of the cargo and the Commercial Invoice Declaration.
Conclusion
In many countries in the world, container security devices will not have to be declared or duties paid on their entry when they are used as accessories attached to the container, an Instrument of International Traffic. However, it appears that Mexico is a little different. The CSD is likely to have to be covered by the carrier's, importer's, or Customs Broker's bond and as a temporary entry. There may even be a small cost if it is treated as a temporary entry. Mexico is simply different. Because it is, the use of a very good Mexican Customs Broker is essential.
Postscript
On December 11, 2010 the draft of this manuscript was sent to the Mexican Embassy for comment or any assistance it could give to resolve this question. Subsequent telephone conversations with the Embassy resulted in a request that this manuscript would not be published until the Embassy had the opportunity to obtain a clarification from Aduana. With the understanding and concurrence of the Embassy, this writer and the Embassy agreed that this analysis not be submitted for publication until the end of January, 2011, giving sufficient time for Aduana to publish or make available an official determination. It appears that the Mexican Embassy did all it could do to help clear up the issue.
Despite the cooperation of the Mexican Embassy, as of January 31, 2011, the Embassy was unable, perhaps because of new leadership in Aduana, to obtain any determination or ruling as to the official Mexican Customs treatment of CSDs.
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About the Author
A former Regents Professor at Texas A&M International University, Dr. Jim Giermanski is now Professor of International Business and Director of Centre for Global Commerce at Belmont Abbey College. He has been chosen as the International Educator of the Year by the National Association of Small Business International Trade Educators and has been appointed to the graduate faculty at the University of North Carolina at Charlotte. In conjunction with the Professional Examination Service (PES) and Bradley University, he is a member of the International Practice Analysis Committee of the NASBITE Task Force to develop a national International Trade Specialist Certificate. He is also a reviewer for the Transportation Research Board, U.S. National Research Council. He served as Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University.
Dr. Giermanski consults often on international transportation and transportation security, border logistics, and trade matters involving Mexico. He has frequently given invited testimony on NAFTA, transportation, and other international business issues before the U.S. Senate and House, the Texas Senate and House, EPA, and the U.S. International Trade Commission. He served as the co-chairman of the Texas Transportation Committee of the Task Force to prepare for NAFTA, sat for 5 years on the Texas Office of the Attorney General’s Trans-border Trucking International Working Group, and for three years as a member of the Research Advisory Committee on Management and Policy, Technical Advisory Panel, Texas Department of Transportation. He has been requested to serve as a border expert to assist the Arizona Department of Transportation in developing concepts and practices to improve the border crossing activities on the Arizona Mexico border, and at the request of the White House, Council of Economic Advisors, he provided information on trade issues and barriers on the southern border.
He has authored over 100 articles, books, and monographs and has given over 100 presentations. He has been published extensively on transportation and trade issues and for five years wrote the International Insight column in Logistics Management. In addition to his scholarly writing, he has been published in the Journal of Commerce, El Financiero, Traffic World, Strategic Finance, Transport Topics and most recently, Tax Notes International. He has been interviewed by and quoted in over 50 national and international publications such as the Wall Street Journal, the New York Times, Forbes, the Financial Times, Christian Science Monitor, and has appeared nationally as a special guest on the FOX News Channel’s Special Report with Brit Hume, CNN, NBC, CBS, NPR, BBC, Voice of America and the Canadian Broadcasting Corporation in addition to many local and regional affiliates.
Finally, with his background as a former FBI special agent, OSI special agent and a Colonel in the Office of Special Investigations where he handled counterintelligence matters, Dr. Giermanski is Chairman of the Board of Powers International, Inc. which provides supply-chain security solutions, consulting, and training. He currently provides transportation security lectures on C-TPAT, and other Customs and Border Protection (CBP) programs.
Dr. Giermanski has a Masters degree from the University of North Carolina in Charlotte, a Masters from Florida International University, and a Doctorate from the University of Miami. He is a graduate of Air Command and Staff College, and The Air War College while also serving as a visiting scholar at the Center of Aerospace Doctrine, Research, and Education, an Air Force think tank.
Citations:
(1) Dr. Jim Giermanski, Secret Formula for Solving the Tariff Treatment of Container Security Devices Used by Aduana, December, 2010
(2) Customs Convention on Containers, 1972, Customs Cooperation Council, United Nations/International Maritime Organization, Geneva, December 2, 1072, p.4.
(3) Customs Convention on Containers, 1972, p. 7.
(4) HQ H044900, December 18, 2008 BOR-4-07OT:RR:BSTC:CCI H044900, p. 1.
(5) Customs Convention on Containers, 1972, p.8.
(6) HQ H005096, March 12, 2007 BOR-4-07-RR:BSTC:CCI H005096, p. 1.
(7) HQ H044900, December 18, 2008 BOR-4-07OT:RR:BSTC:CCI H044900
(8) Pacific Islands Treaties Series Status Report, http://www3.paclii.org/pits/english/status_pages/1972-3.html