Advisories ::
Prototype testing will be duty-free in December
Source: BDP Trade and Security Compliance Unit
November 22, 2004
Manufacturing
companies involved in product development, testing and evaluation
of imported merchandise in the United States (US), have an incentive
to continue and expand upon this practice.
US Customs and Border Protection (CBP) recently issued final rules, effective December 2, 2004, which establish duty-free treatment at entry for certain prototypes. Companies, which conduct R&D activities outside the US, may now find it more cost effective to shift these tasks to the US.
Previously, under the applicable Customs laws, prototypes were subject to duty twice. First, when the prototype was imported and second, as part of the dutiable value of the related imported production merchandise.
Congress eventually determined that assessing duty twice on prototypes unnecessarily inflated costs for US businesses, thereby reducing competitiveness and incentive to conduct product testing in the US. In response, Congress enacted The Product Development and Testing Act (PDTA) to address this anticompetitive situation. The PDTA provides for a new,
duty-free HTSUS subheading 9817.85.01, and also includes a new U.S. Note 6 in subchapter XVII of chapter 98, to define the term "prototypes'' as used in HTSUS subheading 9817.85.01.
To qualify as a prototype, the imported merchandise may be an original or a model of an article that is in pre-production, production or postproduction, provided the merchandise will be used exclusively for product development, testing, evaluation or quality control purposes. If the merchandise is in the production or postproduction stages, to qualify as prototypes, the articles must be associated with a change in design from current production – which includes any refinement, advancement, improvement or development either in the product or in the means for producing the product.
There is no specific limitation on the type of item, or number of items, which may be entered under the prototype provisions. However, in certain cases, an entry may be rejected if CBP concludes that an importer seeks to enter a commodity as a prototype in numbers that are considered to be excessive in light of the purposes intended and the standard practice of the specific industry involved.
The paperwork is minimal. Entry itself is accepted by the port director as a declaration that the articles will be used solely for the purposes stated under the subheading; additional certifications are not required at entry.
After importation into the United States, prototypes or parts of prototypes may not be sold, or incorporated into other articles that will be sold, in the commerce of the United States. If sold as scrap, waste or for recycling, the importer must provide notice of such sale to the port of entry, along with a tender of duties. A quarterly blanket notice of such sale is permissible.
These changes may provide substantial savings for companies undertaking R&D in the US. For more information, contact BDP Trade and Security Compliance, 215-629-8924 or mford@bdpnet.com.
US Customs and Border Protection (CBP) recently issued final rules, effective December 2, 2004, which establish duty-free treatment at entry for certain prototypes. Companies, which conduct R&D activities outside the US, may now find it more cost effective to shift these tasks to the US.
Previously, under the applicable Customs laws, prototypes were subject to duty twice. First, when the prototype was imported and second, as part of the dutiable value of the related imported production merchandise.
Congress eventually determined that assessing duty twice on prototypes unnecessarily inflated costs for US businesses, thereby reducing competitiveness and incentive to conduct product testing in the US. In response, Congress enacted The Product Development and Testing Act (PDTA) to address this anticompetitive situation. The PDTA provides for a new,
duty-free HTSUS subheading 9817.85.01, and also includes a new U.S. Note 6 in subchapter XVII of chapter 98, to define the term "prototypes'' as used in HTSUS subheading 9817.85.01.
To qualify as a prototype, the imported merchandise may be an original or a model of an article that is in pre-production, production or postproduction, provided the merchandise will be used exclusively for product development, testing, evaluation or quality control purposes. If the merchandise is in the production or postproduction stages, to qualify as prototypes, the articles must be associated with a change in design from current production – which includes any refinement, advancement, improvement or development either in the product or in the means for producing the product.
There is no specific limitation on the type of item, or number of items, which may be entered under the prototype provisions. However, in certain cases, an entry may be rejected if CBP concludes that an importer seeks to enter a commodity as a prototype in numbers that are considered to be excessive in light of the purposes intended and the standard practice of the specific industry involved.
The paperwork is minimal. Entry itself is accepted by the port director as a declaration that the articles will be used solely for the purposes stated under the subheading; additional certifications are not required at entry.
After importation into the United States, prototypes or parts of prototypes may not be sold, or incorporated into other articles that will be sold, in the commerce of the United States. If sold as scrap, waste or for recycling, the importer must provide notice of such sale to the port of entry, along with a tender of duties. A quarterly blanket notice of such sale is permissible.
These changes may provide substantial savings for companies undertaking R&D in the US. For more information, contact BDP Trade and Security Compliance, 215-629-8924 or mford@bdpnet.com.
