According to the Customs Border Protection Agency (CBP), a Type 86 Entry is permitted when there is one shipment per day per person with a total value not exceeding $800 in the exporting country.
This means that American shoppers can go online, pay for items, and receive them directly from an overseas facility and not have to be subject to traditional entry procedures.
In essence, if an importer wants to qualify for a Type 86 entry, they will generally need to purchase goods before they leave the exporting country heading to the United States.
FTZ & Type 86
While this model can be very convenient, the fact is that most merchants ship their orders from a US-based fulfillment center with most of these goods valued at less than $800.
In such instances, CBP will usually impose duties under a consumption entry which means a Type 86 entry is out of the question. As such, an American shopper and the merchant must pay Merchandise Processing Fees (MPF) and Harbor Maintenance Fees (HMF) which only increases expenses.
To avoid additional expenses, importers proposed that Foreign Trade Zones (FTZ) be used to facilitate Type 86 entries.
In such a scenario, imported goods that have not been sold in the exporting country can be brought into an FTZ and when a customer order of aggregate value of no more than $800 is received, it may be fulfilled using a Type 86 Entry.
The Law on FTZs
Overall, the FTZ is deemed an area outside the customs territory of the US for duty & tax purposes.
This is because the FTZs are set up to encourage and expedite foreign commerce. As such, they are administered in the context of the US’s evolving trade and economic policy in combination with economic factors to do with international competition.
Under the FTZ Act:
Domestic and foreign merchandise of every description unless it qualifies as items prohibited under the law may be exempted from the customs laws of the US.
It can be brought into an FTZ and then be cleaned, stored, graded, sold, sorted, exhibited, distributed, broken up, assembled, repacked, mixed with domestic or foreign merchandise.
Goods may also be manipulated, destroyed, exported, manufactured, or dispatched to another territory of the United States in original packaging or otherwise.
However, any foreign merchandise that is dispatched from an FTZ into a customs territory of the US shall be subjected to the regulations and laws governing imported goods brought into the US from foreign territories.
Furthermore, all withdrawals of imported goods from an FTZ or any other subzone would have to be subjected to formal entry procedures.
Even though FTZs are deemed to be not subject to the United States customs territory, they are still subject to some regulations and laws set by the CBP. The CBP has laws and regulations on how goods may be allowed into an FTZ and how it is treated within it.
The Tariff Act
Many importers have argued that the model for handling exceptions under Section 321 or Entry Type 86 should be used by the CBP in marking country of origin marking exemptions for merchandise that enter the FTZ.
According to the CBP, the amended Tariff Act of 1930 asserts that every imported article of foreign origin needs to be conspicuously marked. The marking needs to be as indelible, as legible, and as permanent as the nature of the container or article would allow.
This would make it possible for the final purchaser of the merchandise in the US to determine the country of origin of the goods.
Congress made this law to ensure that the final purchaser of the goods would be certain of the origin of the goods they are taking possession of. With such information, they may be able to refuse to buy or take possession of such goods.
In line with that exemption, most CBP rulings have asserted that goods brought into and processed within an FTZ need to be marked to indicate their country of origin when they leave the FTZ and are admitted into the United States for ultimate consumption.
However, this does not apply to the merchandise that has undergone substantial transformation in the FTZ.
Understanding of the de Minimis Exception
In the context of de minimis value, the CBP will not ignore Section 321 requirements as there are no exception laws or regulations about goods valued at more than $800 when they are imported into the United States.
Moreover, importers are not allowed to manipulate the value of shipments in trying to obtain duty-free treatments. Importers need to comply with all customs laws of the United States before the merchandise is withdrawn from the FTZ and dispatched to another United States Customs territory.
Under the Trade Facilitation and Trade Enforcement Act de minimis value exemption imports with a value less or equal to $800 purchased from catalogues or online and delivered directly to the purchaser may not be subjected to any duties.
Why You Cannot Import Under Type 86 Entry
Merchandise shipped to the US is deemed to have been imported into the country before being admitted into the FTZ.
Since the goods have already been imported into the US before they are taken to the FTZ, the CBP analyzes the importation at such a point rather than when it is dispatched from the FTZ.
If bulk shipments are sent from merchants in the exporting country and dispatched to the US before gaining admission into the FTZ, they would not leave the FTZ duty-free as they would have already been imported.
Since most merchandise is received in consolidated bulk shipments when imported and then stored in the FTZ before each order is shipped to the ultimate purchaser, the goods cannot leave the FTZ unless duty is paid.
The reasoning for this is that the total value of the shipment received at the FTZ which doubles up as a distribution center is usually greater in aggregate than $800 which means the duty-free exception is not applicable.
