Importance of a Binding Ruling for your (Imported) Invention
by Edith G. Tolchin
So, you have determined that offshore manufacturing is the best solution for bringing your invention to market, right? Able to stick to the tight "start-up" budget for you newly formed business because you have now seen that it is very frequently cheaper to make your product in another country? The quality of the counter-samples you have been receiving from the various prospective sources is excellent — just as good as, if not better than those you have received from domestic factories?
Excellent quality counter-samples, cheaper costs, the Internet, which brings the entire world to your fingertips — you've done your preliminary research! Now what? When the factories have completed production, independent testing labs have performed their magic, you and your international trade consultant have "dotted all I's and crossed all T's", and you are ready to have your first order shipped — HOW MUCH IN IMPORT DUTIES WILL YOU BE PAYING FOR YOUR INVENTION???
IMPORT DUTIES — What!? Why!? How!? Have you ever traveled abroad and made some neat purchases of gifts and goodies that you haven't, or couldn't have found at home? You know that, when you return to the USA from a foreign country, you will have to go through Customs (formerly U.S. Customs Service — now called "U.S. Bureau of Customs & Border Protection, div. of the U.S. Dept. of Homeland Security"). If you have purchased over a certain dollar value of these items (depending on which country you visited), they must be declared with the Customs Inspectors, and you must pay duty on the amount in the excess of the allowed merchandise value (keep receipts)! Did you think that when you import your great new invention into the shores of the good ole' USA it would be different? YOU MUST STILL PAY DUTY ON THE MAJORITY OF PRODUCTS IMPORTED INTO THE USA.
How do we find out how much duty you must pay on your soon-to-be imported invention? The two options are, first, to comb through the quite lengthy tome entitled the "Harmonized Tariff Schedule of the United States," published through the U.S. International Trade Commission. The "HTS" consists of two very detailed logs, the size of two Manhattan (NYC) phone books, with duty classifications for every product "under the sun", from animals, to fireworks, to raincoats, to computers parts! This guide can also be obtained online, but here's the catch: you must know what to look for! And, since the "HTS" shows duty classifications for "established" products, WHERE EXACTLY DO YOU CLASSIFY YOUR NEW INVENTION? Since most inventions are NEW ITEMS, chances are they won't be listed in the "HTS"! Sure, there may be a similar category — for example, you invented a special type of towel with unique pockets and other fabulous features (we all truly believe our inventions are fabulous)! So, do you look under Chapter 52: "Cotton" or under Chapter 63: "Other made up textile articles"? Good question, right? If you look into any of these chapters, there are so many different options — headings, subheadings, etc. — that after just a minute of reading through them, your brain begins to do a flashdance, out of synch, with your eyes! Again, since your product is unique — that's why it's called an invention — it is very difficult for a first-time importer to determine what the proper classification is for his/her product, in order to determine the duty amount to be added to their "landed" costs. What do you do next?
The old Greyhound commercial stated, "leave the driving to us!" Here is your second option: I recommend you ask your international trade consultant (I think every inexperienced prospective importer should work with one!) or licensed customs broker to prepare a request for a Customs Binding Ruling for your product. The Binding Ruling serves as protection for you, the importer. A sample (prototype is fine) of your invention, along with any literature you have available such as specification sheets, sales literature or brochures, packaging samples, labels, component information, etc., are sent to Customs, with a letter describing the ultimate use of your product, information about your company (to be called the "Importer of Record"), the manufacturer (if known at the time of ruling request), terms of sale, the ports through which you plan on importing the shipment(s) and any other information you or your representative feel may assist Customs in properly classifying your product.
WHY BOTHER? An example I always use is: your first shipment is due into port and is presented for customs clearance. Customs assigns a 5 duty rate and clears your shipment. You have paid 5% on the cost of your product. So, if the documentation shows that your product value was $10,000, the duty you paid was $500. About 6 months later, your invention has been very successful and this time you are importing a shipment valued at $100,000! You have budgeted the duties to now be $5000 (5%), right? WRONG! Without a Binding Ruling on a new invention with no other similar products listed in the "HTS" classifications (determination of import duties) are subject to interpretation by Customs at time of import. Another Customs Inspector who reads your shipment documentation this time may feel that the classification would carry an 8% duty rate. You are now paying $8000 even though you had budgeted only $5000 in duties! So, how do we avoid the "3Gs" (Gambling Guessing Game)??? Now you've got it right: A Binding Ruling!
Why is this important? Improperly classified merchandise can carry very steep penalties! So, to paraphrase another old saying, "it's not nice to fool Mother Customs!" Do it right from the very start, and you will have the satisfaction of knowing what you'll pay in import duties for all forthcoming shipments for your "baby"!
Be sure to meet Edith and attend her seminar at the INPEX Inventors University on Friday, May 14, 2004 at 11:00 AM.
Edie Tolchin holds a Customs Broker License, and specializes in manufacturing and importing services for inventions of textiles and sewn items, bags, baby & fashion accessories, arts & crafts and small household items. For further information, or a free brochure, please contact Edith G. Tolchin of EGT Global Trading, P.O. Box 231, Florida, NY 10921 USA, EGT@warwick.net, Web: hometown.aol.com/egtglobaltrading.
© 2003 by Edith G. Tolchin – EGT Global Trading – All rights reserved.
Edith Tolchin is an independent consultant and principal of the firm EGT Global Trading. Ms. Tolchin is contributing as an industry expert, but is not employed by or otherwise compensated by INPEX, InventHelp or its affiliates. Her participation at INPEX does not necessarily represent the views or opinions of InventHelp or its affiliate companies.
