The Journal of The DuPage County Bar Association

Back Issues > Vol. 25 (2012-13)

Trade Law 101: What Every Non-Trade Lawyer Should Know about Trade
By Mary Kostopoulos

In our global economy companies of all sizes are taking advantage of or considering international trade opportunities.  Attorneys with business clients should understand how to spot the most common import and export issues and cost-saving opportunities for their clients.  Although import/export law is heavily regulated by a web of federal agencies, it is important for attorneys to have a general understanding of the field. 


Regulations around the importation of goods is largely tariff driven and revenue producing for the federal government. [1]  Although many agencies are involved in the regulation of specific goods (U.S. Food and Drug Administration for food, U.S. Department of Agriculture for dairy, Bureau of Alcohol, Tabacco, Firearms and Explosives for firearms, etc.) the U.S. Customs and Border Protection (“CBP”) is the agency that regulates the importation of all goods into the United States customs territory (“U.S.”).  To understand clients’ business needs it is essential to understand the basic customs framework for importing goods.

CBP[2] is required to provide the trade community with improved information about import requirements, and importers are required to exercise reasonable care in understanding and complying with those requirements.  There are three factors that determine the duty rate of imported goods:  "classification," "valuation" and "country of origin" of the goods entering into the U.S.


Determining the proper classification of goods is an important first step for the importation and documentation of goods to CBP. Inexperienced importers often incorrectly classify or rely on the classification provided by their customs broker and are later surprised with fines and penalties.

The United States is a member of the World Customs Organization (“WCO”) and thus a participant country in the Harmonized Tariff Schedule maintained by the WCO. The Harmonized Tariff Schedule of the United States ("HTSUS") classifies all goods into one of 99 "chapters" of increasing sophistication.  [3]

For some goods, lemons for example, the classification is very simple and little is left for an attorney to advocate: HTSUS 0805.50.2000 "Citrus fruit, fresh or dried: Lemons and limes; Lemons." For other goods the classification can hinge on chemical formulas, weight, package size, pattern, etc.  Take for example cotton, which accounts for all of HTSUS Chapter 52.  It is classified based on whether it is carded or combed, the size of its staple length, whether it is harsh or rough, whether other materials are woven in with it, weave pattern, etc.  The tariff rate, based on these classifications, ranges from zero to 16.5 percent. Textile importers may be interested in reviewing their import classifications to determine whether another classification, with a lower duty rate, may be applicable to their goods. An experienced customs attorney may be able to advocate for that more favorable classification on that client’s behalf.


The second factor in determining duty rates is the value of the imported goods.  The CBP is very clear that although there is a hierarchy of valuation methods, transaction value should always be used if available.[4]  It is most often the price paid when goods are sold for export to the U.S., with certain costs added to that price and certain costs subtracted.  Included in the list of added costs are the costs of packing, selling commissions and "assists."  [5]  Determining what qualifies as an "assist," valuing the "assist" and prorating that value into the value of the goods being imported over the lifespan of that "assist" can be very complicated for importers. 

If goods cannot be appraised using transaction value, then the following methodologies are available, in the following order:

Transaction Value of Identical Merchandise

Transaction Value of Similar Merchandise

Deductive Value (The resale value of the goods in the US, less certain deductions.)*

Computed Value (The sum of certain costs.)[6]

Values if Other Values Cannot be Determined.

Between related party transactions using transfer pricing to determine the value of their goods,  calculating the value of assists, and importers attempting to use various other CBP programs to decrease the value of their goods, determining the correct value of goods can be very complicated.

Country of Origin/ Marking Requirements:

The third factor in determining the customs duty of an imported item is its country of origin.  The HTSUS provides for three duty rates for each item based on its country of origin: (1) the general duty rate, (2) the special duty rate if the item qualifies under a free trade agreement or other trade program and (3) the duty rate for countries that do not have normal trade relations with the U.S. [7]

The country of origin for goods grown, produced and manufactured all within the customs territory of one country may be straightforward, but with component parts manufacturing and complicated assemblies, increasingly goods are manufactured in more than one country.  Often a component part is manufactured in one country, shipped to another, further assembled and imported into the U.S.  In such a case a "substantial transformation" analysis would need to be conducted to determine if the good changed its name/character/ or use. [8]

It should be noted however that each free trade agreement and trade program (North American Free Trade Agreement, African Growth and Opportunity Act, Generalized System of Preferences, etc.) has its own specific rules around determining the country of origin and therefore eligibility under such program. [9]

Once the country of origin of a good has been determined, it must be labeled on the good.  There are two sets of marking rules: one for goods from Canada and Mexico and one for goods from all other countries.  Generally, the label must be in English, legible and permanent enough for the ultimate purchaser to be made aware of the goods’ origin.  [10]

Keeping the above general framework for importation in mind, CBP has worked with the trade community for decades to establish special trade programs for the benefit of importers.  In addition to the more well-known free trade agreements, CBP also has created foreign trade zones (secured areas near ports of entry considered outside the customs territory of the U.S. for the purposes of entry procedures and tariffs), bonded warehouses (warehouses or secured areas where dutiable goods can be stored without paying duties), drawback programs (where tariffs on recently imported goods can be largely refunded if such goods are  exported or destroyed), first sale for export (where an importer uses the value of an earlier sale to a middleman or distributer upon sale for export to the U.S. as the value of the good for entry) and numerous other programs for the benefit of importers.  It is important for attorneys with manufacturers or importers as clients to understand not just the basic customs framework, but also to be able to potentially spot cost savings programs for their clients.


Unlike customs regulations, export regulations are not tariff or revenue driven. The primary focus of the federal government in establishing a web of agencies, rules, regulations and procedures for exporters is to control certain goods and technology from falling into unfriendly hands.

Whereas importers are most often aware that they are importing goods and required to follow certain procedures and pay certain duties, exporters are often completely unaware that they are exporting or that there are export controls with which they are required to comply.

The first surprise for many exporters is that the definition of an exportation is not limited to the physical shipment of items out of the United States.  [11]

Similar to import law, many agencies regulate the exportation of goods and services (State Department (munitions and defense articles), Department of Energy (gas and electric power), Department of Interior (wildlife), Food and Drug Administration (medical devises) and a dozen others).  This article focuses on the main agency that regulates the vast majority of licensable exports from the U.S.:  the Bureau of Industry and Security (“BIS”) within the Commerce Department.

It is important to first determine if the export is subject to BIS's regulation or that of another agency.  Exporters must either familiarize themselves with the various federal agencies and their jurisdictions or work with an experienced export attorney who can confirm there are no additional or alternative export requirements to those of BIS.  BIS regulates dual-use items that have both a commercial and a military or nonproliferation application. [12] To determine if an item is controlled for export the Export Control Classification Number (“ECCN”) must be assigned .  This is a five digit number that categories the items into one of nine categories (computers, sensors and lasers, etc.) and five product groups (material, technology, etc.)  [13]

License requirements and exceptions are then provided for each classification based on the destination country.  An item that may not be controlled for the Czech Republic may be controlled for Guatemala. Following our example, ECCN 3A201 is controlled for nuclear nonproliferation and anti-terrorism.  Thus it is not controlled for export to a number of countries, including Argentina, Italy and Canada, but it is controlled for export to India, Israel, Hong Kong and many other countries.  [14]

If no Export Control Classification Number applies to a dual-use item, then that item falls under the EAR 99 category and is not controlled to any non-embargoed country.  [15]

It is important to keep in mind that releasing information and technology to a foreign national in the U.S. is considered a deemed exportation to that foreign national's country of last permanent residence and such release must follow the same export procedures outlined above.  [16]

Finally, regardless of the item of exportation or technology, all exporters should confirm before every exportation that their items or technology are not shipped or released to any person or entity on BIS's Entity List, Unverified List, or Blocked Person's List, or the Office of Foreign Assets Control's Specially Designated Nationals and Blocked Persons List. [17]

Although the laws and regulations around exportation are complicated and can be confusing to an exporter, it is very important that they are understood and complied with.  Fines and penalties around export violations and noncompliance can be very costly and carry criminal liability.  An experienced export attorney can assist exporters by providing export training, establishing export procedures, including record keeping requirements, and drafting export compliance manuals.  Being able to demonstrate that these steps were taken is a mitigating factor to BIS and the other federal agencies in the event of an accidental violation.

With companies of all sizes relying increasingly on foreign manufacturing and foreign sales of their products and technology, it is important for business attorneys, whether transactional or litigators, to have a basic understanding of trade law.  Dozens of federal agencies are involved in regulating the importation of goods and exportation of goods and technology. This article is an introduction to understanding the basic framework of this heavily regulated and constantly changing field of law. 

  (See CBP's 2011 Fiscal Year in Review,, Oct. 2, 2012.)

(19 U.S.C. 1508, 1509 and 1510, providing the Customs Modernization Act which established a new regulatory framework for the importation of goods into the U.S.)

(See 19 U.S.C. 1202, 19 CFR 11)

(19 CFR 152.101(b))

(19 CFR 152.102(a))

(19 CFR 152.101(c))

(See HTSUS General Note 3(b), providing the current list of countries not qualified for normal trade relations with the U.S., and thus onto which are assessed full customs duties.)

(19 CFR 102.11.)

(19 CFR 102.11, 102.181)

(19 CFR 134 and 102.19)

(15 CFR 734.2(b))

(15 CFR Chapter VII, Subchapter C) 

(15 CFR 774, providing the Commerce Control List)

(15 CFR 738, providing the Country Chart for use with the Commerce Control List)

(15 CFR 746, providing the current list of embargoed countries)

(15 CFR 734.2)

(15 CFR 744, providing further explanation around end-use restrictions)

[1] In fiscal year 2011, the last year for which data is available, $2.3 trillion worth of goods were imported into the United States.

[2] According to the 1993 Customs Modernization Act.

[3] Each good that enters international commerce is assigned the same number to a 6-digit level, and for entry into the U.S. specifically, that classification is extended four additional digits to a 10-digit level. 

[4] "Transaction value" is the appraised value of the goods being imported into the U.S.

[5] CBP defines "assists" as any number of costs (molds, design work, components, engineering, etc.) that were incorporated in the imported good free of charge or at a reduced cost. (FN 5)

[6] Note that the importer can decide to enter the goods calculating the value under the computed value methodology rather than the deductive value methodology, but must do so at the time of entry.

[7] Currently Cuba and North Korea.

[8] Such a determination is made case-by-case and based on whether the good underwent a tariff classification shift into a new category.

[9] Most use a combination of two factors: a manufacturing in the country or region that results in a tariff shift and a minimal regional value content. 

[10] Although there are exceptions for certain products (either that are older, unlabelable, will be further manufactured by the importer after entry, labeled on the package rather the item, etc.) most goods must be marked in accordance with one of the two sets of marking rules. 

[11] It is also considered an exportation to upload software that can be downloaded, email information, or release information to a foreign national in the United States, even if that person is an employee. (FN 11)

[12] Those dual-use items are subject to the Export Administration Regulations (“EAR”).

[13] For example, ECCN “3A201” provides for “Electronic components, other than those controlled by 3A001, as follows (see List of Items Controlled).” 

[14] To export to one of these controlled countries an importer would need to obtain an export license or license exception. 

[15] Currently the U.S. embargoed countries are Cuba, Iran, North Korea, Sudan and Syria, but the list of embargoed countries should be consulted frequently as it is often revised to reflect a change in perceived U.S. danger and interests. 

[16] Similarly in many instances a U.S. company’s foreign subsidiary's shipment of goods or release of information may be considered an exportation and need to be controlled.  (FN 16)

[17] Further, it is a good idea for exporters to ask the recipients of their goods or technology to execute an end-user agreement, representing that they are the end user and that they will not provide the export to a third party on any of the above lists. (FN 17)

Mary Kostopoulos is Senior Counsel at Momkus McCluskey LLC.  Mary has over ten years’ of experience in the trade field and began her career at Regulations and Rulings, Office of International Trade, U.S. Customs and Border Protection in Washington, D.C.  She earned a B.A. from the University of Chicago, a J.D. from Washington College of Law at American University and a M.A. in International Affairs from the School of International Service at American University.

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