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Advance rulings: facilitating trade while promoting compliance

By the United States Customs and Border Protection (CBP)

Advance rulings relating to the determination of tariff classification and origin of goods are already established in several countries, but few have implemented such a system in the field of Customs valuation. Such rulings do not determine or confirm the actual Customs value of a particular consignment but indicate the treatment to apply to certain elements of the Customs value. In this article, US Customs and Border Protection (CBP) explains the processes and procedures relating to this powerful trade facilitation tool which benefits both the administration and trade operators.

 

It has long been a hallmark of US trade policy that advance rulings facilitate trade and promote Customs compliance. This utility of advance rulings has also been recognized in the WTO Trade Facilitation Agreement, the Revised Kyoto Convention and many free trade agreements.

In the United States, advance rulings play a critical role in importers’ business planning. For example, an advance ruling on classification or valuation can influence the price an importer is willing to pay a foreign supplier or the price at which the importer resells the goods. Advance rulings allow businesses to plan for the future effectively and proceed with certainty.

In addition to advance rulings, CBP also issues several other types of rulings. These include internal advice decisions on pending transactions, protest decisions on appeals of completed transactions and final determinations concerning the country of origin for purposes of government procurement.[1]

More generally, CBP’s rulings system creates legal precedent to guide the trade community and fosters openness, transparency and dialogue between CBP and traders. Since 1989 and as of 19 August 2020, over 206,000 advance rulings, internal advice decisions and protest decisions have been published on CBP’s Customs Rulings Online Search System (“CROSS”). The database behind CROSS has created a substantial body of legal precedent that importers turn to when compliance questions arise. The process of issuing a ruling also encourages communication with CBP and ensures the importer’s rights are preserved. Finally, because the advance ruling number is noted on the entry documents, both the importer and CBP benefit from faster cargo processing and reduced delays at the port.

What is an advance ruling?

An advance ruling is a written decision in the form of a letter issued by CBP’s Office of Trade, Regulations and Rulings that tells the requester how CBP will treat a good or conveyance when it is imported into, or arrives in, the United States. An advance ruling represents CBP’s official position on the particular transaction or issue described and is legally binding on CBP until modified or revoked. As all CBP rulings, advance rulings have no expiration date and are issued free of charge.

As the name suggests, an advance ruling may be requested only for “prospective” Customs transactions. The CBP regulations define a “prospective” Customs transaction as “one that is contemplated or is currently being undertaken and has not resulted in any arrival or the filing of any entry or other document, or in any other act to bring the transaction, or any part of it, under the jurisdiction of any Customs Service office.” Therefore, an advance ruling may not be requested for a pending or completed transaction.

Under US regulations, “Customs transactions” for which an advance ruling may be requested include any activity to which Customs and related laws apply. The most common issues for advance rulings in the United States are classification and origin. However, CBP regularly issues advance rulings on valuation, duty drawback, restricted merchandise, intellectual property, vessels and carriers, and entry procedures, among other subject matters.

Advance rulings process

The advance rulings process commences with a written request from an importer, exporter or a party who has an interest in the question presented, or by the authorized agent of such person. It requires a complete statement of all relevant facts relating to the transaction such as the names, addresses and other identifying information of all interested parties; the name of the port or place at which any article involved in the transaction will arrive or be entered; and a description of the transaction. If the request for a ruling asks that CBP reach a particular determination or conclusion, a statement must be included in the request setting forth the basis for that determination or conclusion, together with citations to the relevant supporting authority.

There are several instances in which no ruling will be issued. Any request for a ruling may be withdrawn by the person submitting it at any time before the ruling is issued. Additionally, CBP will not issue a ruling letter if the request fails to comply with the applicable provisions of its regulations in 19 CFR Part 177. For example, CBP will not issue a ruling letter relating to transactions or questions that are essentially hypothetical in nature or concerning any issue pending before the US Court of International Trade (“CIT”) or any of its appeals courts.

CBP endeavours to issue advance rulings within 30 days of receipt (for requests handled by our National Commodity Specialist Division in New York City) or 90 days of receipt (for requests handled at the Headquarters office). CBP rulings are issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter is accurate and complete in every material respect. However, CBP reserves the right to verify whether an actual transaction conforms to the facts described in the ruling letter and whether any conditions in the ruling letter have been fulfilled. If there are substantial discrepancies, CBP may decline to apply the ruling letter.

Generally speaking, a ruling letter is effective on the date it is issued and may be applied to all entries which are unliquidated, or other transactions with respect to which CBP has not taken final action on that date.

The advance ruling process emphasizes communication and collaboration between the trade community and CBP. As part of their written submission, requesters may ask for the opportunity to discuss the issues involved with the decision-makers at CBP. If CBP finds that a conference would be helpful in deciding the issue or issues involved, a conference call or in-person meeting may be scheduled. Similarly, when CBP contemplates a determination or conclusion contrary to that advocated in the ruling request, CBP will schedule a meeting to give the parties an opportunity to freely and openly discuss the matters set forth in the ruling request.

Valuation advance rulings

While most traders are familiar with advance rulings relating to classification, those relating to valuation are less widely understood. One challenge, both for Customs and for importers, is that the value of identical merchandise may vary for each importation based on contract terms, currency fluctuations, shipping or insurance costs, and the amount of required additions or deductions. As a result, an advance ruling that simply calculates the Customs value for a single shipment is of limited utility. This aspect distinguishes a valuation ruling from a classification ruling, which definitively instructs the importer on how to classify a particular product.

For these reasons, CBP’s advance rulings on valuation answer specific questions about how to determine the Customs value and how to interpret US valuation law. For example, CBP’s valuation advance rulings commonly address issues such whether a sale for exportation occurs, whether a related-party price is an acceptable transaction value, and whether specific payments such as royalties and license fees must be added to the price actually paid or payable. If, for example, CBP issues a ruling indicating that transaction value is the proper method of valuation for a particular transaction, the importer must apply the transaction value method for determining Customs value. However, the importer ultimately remains responsible for reporting the correct transaction value to CBP. An advance ruling on valuation will be applied only to transactions involving the same merchandise and like facts.

In order to facilitate the issuance of valuation advance rulings, CBP regulations require the submission of additional information such as the nature of the transaction (whether FOB (Free on Board), EXW (Ex Works), CIP (Carriage and Insurance Paid To), or some other term of sale was agreed upon between the parties), the relationship (if any) of the parties, whether the transaction was at arm’s-length, whether an agency relationship exists, or any other information relevant to a determination under CBP laws. If the question or questions presented in the ruling request directly relate to matters set forth in any invoice, contract, agreement or other document, a copy of the document must be submitted with the request. Since an advance ruling is issued for a prospective Customs transaction, documentation for a sample transaction for illustrative purposes may be submitted.

Publication: US approach to transparency

CBP advance rulings are published within 90 days after issuance on the CBP website and are available for free online. Specifically, they can be found on CROSS (https://rulings.cbp.gov/home), which is a searchable database of full-text CBP rulings. Relevant keywords can be used for targeted research, for example, “price actually paid or payable” when searching for valuation rulings.

In an effort to achieve transparency while protecting confidentiality, a ruling requester may request that CBP exclude sensitive commercial information from the published ruling. In considering these requests, CBP balances the requester’s legitimate concerns about the disclosure of sensitive information with the trade community’s interest in the publication of detailed and useful rulings. The requestor must designate the specific information involved and indicate why its disclosure would be harmful. For example, valuation ruling requests often contain sensitive commercial information such as pricing or other financial data. If the request is granted, the confidential information will be omitted from the published ruling; however, a confidential version of the ruling letter will be issued to the requester. If CBP does not agree that the identified information is exempt from disclosure, the requestor will be notified, and the requester has the option of withdrawing the ruling request. However, in most cases, the ruling can be drafted in a manner that omits the confidential information but still provides meaningful guidance.

Modifications, revocations and appeals

CBP will not modify or revoke a published ruling without notifying the public and providing an opportunity to comment. A ruling that would modify or revoke an existing ruling is first published as a “proposed” decision in the “Customs Bulletin” (http://www.cbp.gov/trade/rulings/bulletin-decisions). The public then has 30 days to submit written comments to CBP. Upon review of the submitted comments, CBP may publish a final decision to modify or revoke the ruling (effective 60 days after publication), withdraw the proposal or issue a modified proposal.

There are several options for recourse if the importer disagrees with the conclusion of a ruling or its application. In exceptional cases where the importer can demonstrate irreparable harm without pre-importation judicial review of the ruling, the importer may bypass CBP and appeal directly to the CIT. More commonly, however, the importer will seek reconsideration of the ruling or file a protest.

Reconsideration offers the importer an opportunity to provide additional information and arguments to CBP Headquarters. In cases where the original request was submitted without the assistance of counsel and the ruling has a substantial commercial impact, the requester will often choose to engage a Customs attorney for the reconsideration request. If the reconsideration is unsuccessful, and the importer wishes to further challenge the conclusion of the ruling, it may file an administrative protest after liquidation of the entry. An unsuccessful protest may then be contested at the CIT. Alternatively, if the importer disagrees with the application of the ruling to the import transaction, rather than to the conclusion of the ruling, it may request internal advice from CBP Headquarters while the transaction is pending. In all cases, however, the importer must follow the ruling while any appeal or review is pending.

Year after year, the popularity of advance rulings as a mechanism for trade facilitation and Customs compliance in the United States continues to grow. In 2019 alone, CBP issued over 3,000 advance rulings on a wide variety of Customs matters. CBP continually refines and improves its processes and procedures relating to advance rulings and welcomes opportunities to assist other administrations in implementing this powerful and mutually beneficial tool.

More information
cbpwco@cbp.dhs.gov

[1] More information on all CBP rulings may be found in Part 177 of Title 19 of the Code of Federal Regulations.