BRO 3-05
OT:RR:CTF:ER
H290535 SLJ
Ms. Betty Stansbury
Hampton Products International Corporation
50 Icon
Foothill Ranch, CA 92656
RE: Customs business and broker rules; HTSUS classification recommendations; disclaimers
Dear Ms. Stansbury:
This letter is in response to the ruling request originally filed by Nick Mauro and dated September 15, 2017. The request discussed Hampton Products International Corporation’s (Hampton’s) practice of providing tariff subheadings to customers, the effects of a disclaimer, and the potential risk to Hampton customers.
FACTS:
Hampton is an importer and supplier of packaged consumer goods whose customers include big box retailers in home and hardware stores. Hampton does not have a customs broker’s license. During a phone call on October 27, 2021, you clarified that when Hampton acts as a supplier, its customers are the importers of record. Many of these customers request that Hampton provide the Harmonized Tariff Schedule of the United States (HTSUS) subheading for the merchandise the customer is importing. You also stated that these customers have their own internal customs compliance teams who confirm Hampton’s recommended classification subheadings when preparing the entry documents.
Hampton’s practice of providing HTSUS subheadings to customers includes a disclaimer that the “subheadings are advisory only, and the customer’s importing/export compliance teams need to verify the information provided, as they are responsible for final submission of entry documents to US Customs if they are importing or exporting goods.” In the alternative, Hampton proposes the following disclaimer:
These are the HTSUS subheadings that Hampton uses for imports, in no way should this information be used as confirmation or endorsement that you (customer) should use these same subheadings for your import and export declarations. Importer of record accepts all responsibilities for ultimate submission to US Customs. Please consult with your Broker.
You are inquiring whether the practice of recommending HTSUS subheadings is permissible without a customs broker’s license.
ISSUE:
Whether Hampton’s practice of providing HTSUS subheadings to its customers for Hampton products with a disclaimer stating that the HTSUS subheadings are for information only violates 19 U.S.C. § 1641(b)(1) by conducting customs business without a license?
LAW AND ANALYSIS:
Classifying goods for others is “customs business” and must be carried out by a licensed customs broker. Pursuant to 19 U.S.C. § 1641(b)(1), “[n]o person may conduct customs business (other than solely on behalf of that person) unless that person holds a valid customs broker’s license . . . .” “Customs business” is defined in 19 U.S.C. § 1641 as:
[T]hose activities involving transactions with U.S. Customs and Border Protection concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges, assessed or collected by U.S. Customs and Border Protection upon merchandise by reason of its importation, or the refund, rebate, or drawback thereof. It also includes the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with U.S. Customs and Border Protection in furtherance of such activities, whether or not signed or filed by the preparer, or activities relating to such preparation, but does not include the mere electronic transmission of data received for transmission to Customs.
19 U.S.C. § 1641(a)(2); see also 19 C.F.R. § 111.1 (reflecting the statutory definition and also excluding corporate compliance activities from the definition). The Customs regulations further indicate that “[a]ny person who intentionally transacts customs business . . . without holding a valid broker’s license, will be liable for a monetary penalty for each such transaction as well as for each violation of any other provision of 19 U.S.C. § 1641.” 19 C.F.R. § 111.4. Corporations are considered to be persons for purposes of customs broker licensing. See 19 C.F.R. § 111.1 (“‘Person’ includes individuals, partnerships, associations, and corporations.”).
The act of “classifying a client’s merchandise that will be entered with Customs” constitutes customs business and is precluded if provided without a license. HQ 114404 (Mar. 16, 1999). In HQ 115248, dated August 28, 2001, Customs indicated that even when there is a “possibility” that classification information will eventually be used for an entry, a broker’s license is required “to gather classification data which will be reflected on the entry.” Additionally, in HQ H068278, dated September 28, 2009, Customs and Border Protection (CBP) determined that an unlicensed entity would conduct “customs business” if it provided software to clients that determined classification and other entry-related information even though the entry forms were ultimately filed by a U.S. customs broker. A broker’s license was required because the software was going to “direct the U.S. customs broker in the preparation of the entry” and there would be no other action by the broker “other than the act of filing itself.” HQ H068278. However, an unlicensed person may advise clients “on U.S. Customs policies and procedures, provided such advice is general and does not include specifics on how to classify, value, or mark an item which is going to be the subject of a particular import entry.” HQ 114654 (May 28, 1999); see also HQ 115278 (Nov. 13, 2001). Therefore, CBP regulations and rulings dictate that classifying specific goods for others that are going to be the subject of an entry filed with Customs is customs business that requires a customs broker’s license.
We note, however, that CBP has consistently held that classifying goods to the six-digit level of the HTS is not customs business and does not require a customs broker’s license. For example, in HQ H260075, dated April 3, 2017, CBP noted that classification to the six-digit level of the HTS “does not constitute customs business.” See also Importer Security Filing and Additional Carrier Requirements, 73 Fed. Reg. 71,730, 71,734 and 71,746 (Nov. 25, 2008). This level of classification “does not constitute customs business because the six-digit HTS provision is insufficient for entry.” H045695; see also Required Advance Electronic Presentation of Cargo Information, 68 Fed. Reg. 68140, 68146 (Dec. 5, 2003). However, “[i]f the number is reported to the ten-digit HTSUS level, then the [manifest information] concerns classification for purposes of customs business and requires a license.” H260075 (citing HQ H045695 (Oct. 15, 2010)). Thus, no customs broker’s license is required for the classification of goods to the six-digit level of the HTS.
In this case, Hampton’s provision of tariff subheadings to the eight-digit and ten-digit level to its customers without a customs broker’s license violates the customs broker’s license requirement. The provision of HTSUS subheadings to others is customs business. Section 1641(a) provides that the “preparation of documents” that are “intended to be filed with” CBP is considered customs business, and HQ 115278 states that giving advice about how to classify a good is a necessary part of the preparation process for documents that will eventually be filed with CBP. Here, Hampton provides specific classification subheadings for specific goods sold to its customers which must be entered by its customers. This act goes beyond the allowable general advice about how to classify because Hampton is providing specific subheadings on specific goods that its clients have ordered and for which they will be filing entry documentation with Customs. See HQ 114404. Providing the classification subheadings for the goods that the customers are purchasing is a “specific on how to classify” and directs the customs broker in the preparation of entry documents, thus requiring a customs broker’s license. See HQ 114654 and HQ H068278. Further, because Hampton’s customers request the subheadings before importing the goods that Hampton supplies, there is a strong possibility that the customers will use subheadings provided on the entry filed with CBP. See HQ 115248. The act of providing HTSUS subheadings to others, therefore, qualifies as customs business and requires a customs broker’s license.
Under certain limited circumstanced, however, providing a disclaimer advising that classification must be completed by a licensed customs broker may allow an unlicensed entity to provide classification guidance for others. In HQ H272798, dated January 26, 2017, for example, an unlicensed company prepared a database of HTSUS subheadings that the requesting company would use as a reference. The database was accompanied by a disclaimer that stated that the report was for “general, educational and planning purposes” only and that a licensed customs broker was responsible for the specific classification of a specific entry. HQ H272798. CBP determined that the provision of a database with HTSUS subheadings with the disclaimer was not customs business and therefore did not require a customs broker’s license if the disclaimer was meaningfully implemented. Id. Further, CBP found that the database did not direct a broker in the preparation of the entry documents and thus was not customs business. Id.
Here, Hampton’s proposed disclaimer does not absolve the need to obtain a customs broker’s license to provide HTSUS tariff subheadings to its customers. The provision of the specific HTSUS subheadings for specific merchandise purchased for importation goes beyond something like a permissible tariff classification database used for general reference purposes. See id. Although both Hampton and the company in HQ H272798 provide a disclaimer that a customs broker is responsible for the final classification of the good, Hampton takes the classification a step further by providing specific subheadings for specific goods that will be subject to entry when Hampton’s customers import the goods. HQ H272798; see also HQ 114654 (concluding that no customs broker’s license is necessary as long as advice is general and “does not include specifics on how to classify”) and HQ 115248 (noting that if there is a possibility that classification information will end up on an entry, a customs broker’s license is required for the provision of that classification information). Hampton’s disclaimer accompanies subheadings for a specific good that a customer will order for importation, rather than a database that is used as a general reference. Thus, even with Hampton’s disclaimer, a customs broker’s license is required because of the specific subheading information provided that is likely to be used for purposes of submitting entry documentation.
Finally, you inquired about the potential risk to Hampton customers in relying on Hampton’s provision of the HTSUS classification for its merchandise. Pursuant to 19 U.S.C. § 1484, all parties “shall, using reasonable care . . . make entry . . . .” See also 19 C.F.R. Part 171 App. B(D)(6) (“All parties, including importers of record or their agents, are required to exercise reasonable care in fulfilling their responsibilities involving entry of merchandise.”). The standard of “reasonable care” can become relevant in the penalties context under 19 U.S.C. § 1592. Pursuant to § 1592, once Customs has shown that a materially false statement or omission occurred, “the defendant must affirmatively demonstrate that it exercised reasonable care under the circumstances.” United States v. Ford Motor Co., 463 F.3d 1267, 1279 (Fed. Cir. 2006); see also 19 U.S.C. § 1592(e)(4); 19 C.F.R. Part 171 App. B(C)(1) (“A violation is determined to be negligent if it results from an act or acts (of commission or omission) done through either the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances . . . .”).
A defense of reasonable care includes,
seeking guidance from the Customs Service through the pre-importation or formal ruling program; consulting with a Customs broker, a Customs consultant, or a public accountant or an attorney; or using in-house employees such as counsel, a Customs administrator, or if valuation is an issue, a corporate controller, who have experience and knowledge of customs laws, regulations, and procedures.
United States v. Optrex America, Inc., 560 F. Supp. 2d 1326, 1335 (Ct. Int’l Trade 2008) (citing H. Rep. No. 103-361 at 120).
Seeking advice and guidance from a customs consultant, however, does not provide a per se defense of reasonable care. See United States v. Golden Ship Trading Company, 25 CIT 40, 48 (2001). As indicated by the Informed Compliance Publication, Reasonable Care (A Checklist for Compliance), “[t]he facts and circumstances surrounding every import transaction differ . . . . Consequently, neither U.S. Customs and Border Protection nor the importing community can develop a foolproof reasonable care checklist which would cover every import transaction.” Indeed, many of the checklist questions contemplate the use of an expert or consultant and still highlight the need for further procedures to conduct reasonable care. For example, “If you use an expert to assist you in complying with Customs requirements, have you discussed your importations in advance with that person and have you provided that person with full, complete and accurate information about the import transactions?”
Here, Hampton’s customers, as the importers of record, are responsible for completing entry on the goods Hampton supplies with reasonable care as required by statute. Based on the facts provided, Hampton is not a licensed customs broker or any other customs consultant identified as having the requisite experience and knowledge of customs laws, regulations, and procedures. Therefore, mere reliance by Hampton’s customers on Hampton’s classification advice does not establish reasonable care.
Hampton’s provision of tariff subheadings to its customers is customs business that requires a customs broker’s license. Even with a disclaimer, the provision of the subheadings is a specific classification for a specific good that is likely to be used for purposes of submitting entry documentation. Further, Hampton is not an appropriate expert to provide classification information to its customers, and they must consult with a qualified expert to ensure they make entry with reasonable care. Under these circumstances, the provision of these subheadings is considered customs business that requires a customs broker’s license.
HOLDING:
Based on the above, Hampton’s practice of providing HTSUS subheadings to its customers for Hampton products with a disclaimer stating that the HTSUS subheadings are for information only violates 19 U.S.C. § 1641(b)(1) by conducting customs business without a license.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1) and (2).
Sincerely,
Gail G. Kan, Chief
Entry Process and Duty Refund Branch