There are some cases in law where everything that could go wrong does go wrong. Tribunal Decision TC00527: Recoverypak Ltd is an unfortunate example of this. This case shows how a company that did not employ customs planning left itself exposed on a number of fronts and thus ended up not only facing a significant back-duty demand from HMRC but also incurred costs from taking a case to Tribunal that was on a hiding-to-nothing from the start.

The Facts

Recoverypack Ltd imported plastic bags from China and Thailand and declared them under two different commodity (CN) codes- 3923.21.00.99 (Other plastic articles- 6.5% duty) and 3923.21.00.00 (code no longer in use). HMRC carried out a verification check on these products and concluded that the codes were incorrect and should have been CN 3923.21.00.20 (Plastic, of polymers of ethylene- of a sheeting of a thickness not exceeding 100 micrometers-6.5% duty). Recoverypack Ltd accepted this as the correct code but unfortunately, that CN Code attracted Anti Dumping Duty (ADD) on imports from China and Recoverypack were thus faced with a back-duty demand of £65,511.54.

Recoverypack appealed on the basis of 3 arguments:

• Insufficient notice was given of the ADD and the company was not aware that it was due
• The goods did not "originate" in China and therefore the ADD was not payable and;
• The appellant had apparently sought assurance from HMRC Tariff Classification Helpline and were given the wrong code

The issues

There are 3 main issues in this case which we will look at in turn:

• Classification
• ADD
• Customs Rules of Origin

Classification

Recoverypack misclassified the plastic bags to two codes instead of to the correct code. Apparently, they had called the HMRC Tariff helpline for assistance but were given an incorrect code and tried to argue that they were not liable for the additional duties due to the mitigating circumstances allowed under Article 220(2)(b) of the EC Customs Code (Regulation 2913/92) which states that:

"The amount of duty legally owed was not entered in the...accounts as a result of an error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment, the latter for his part having acted in good faith and complied with all the provisions laid down by the legislation in force as regards the customs declaration."

On statement of fact, this argument falls down because the code purportedly given by HMRC was not actually one of the codes used by Recoverypack. On legal principle the "result of an error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment" also fails because of the principle that an importer has all the necessary materials available to them (The EC Tariff, Tariff Explanatory Notes, European BTI database, HMRC Public Notices) and has the ultimate option of applying for Binding Tariff Information if they are unsure of which classification code to use (which in this case Recoverypack did not do).

How Customs Planning would have helped Recoverypack

A customs review would have identified that the codes that Recoverypack were using were incorrect. As the "Plastics Chapter" of the Customs Code does drill down to % contents, a customs review would have identified this as a potential risk area. Ultimately, a Binding Tariff Information request would have been submitted and Recoverypack would have had legal certainty as to the correct ruling and this would have enabled to see that the goods in question were firstly vulnerable to and the secondly liable to ADD from China. This leads onto the next issue.

Anti Dumping Duty

ADD is a protective trade measure that is employed should a product be deemed to be "dumped" at an artificially low price in the EC market and thus be "damaging" EU producers following a review process. The number of ADD's are increasing, especially on products from China so anyone who does import from China should conduct a check to see if those products are liable to ADD. Recoverpack were unfortunate in that the goods were in transit and a price had been negotiated prior to the imposition of the ADD. Some regulations do provide for a period of grace or transition so that this scenario does not come about but the regulation in question did not do so and unfortunately this type of issue is regarded as a "risk of the trade" in the eyes of the courts.

How Customs Planning would have helped Recoverypack

Customs Planning would have enabled Recoverypack to see that ADD investigations were taking place prior to any measures being published. This would have been a natural extension of the classification review but would have enabled Recoverypack to at least be aware of the investigation and thus not be exposed once the regulation came into force.

Origin

Recoverypack also tried to argue that the above ADD measures were irrelevant by arguing that the imported products did not originate in China. They argued that the only raw material that went into the goods was material that had been exported to China by an associated company from the UK. They argued that the process in China was a "minor process" that did not confer origin on the product. Unfortunately this argument shows a misunderstanding of the rules of origin. The materials used in the bags were indeed exported from the UK to China but were shipped as scrap to China where there were shredded, melted and then made into plastic bags. Article 24 of the Customs Code states that origin is derived from the place where the goods underwent their "last substantial, economically justified processing or working...and resulting in the manufacture of a new product or representing an important stage of manufacture".

How Customs Planning would have helped Recoverypack

In this particularly area, customs planning would have allowed for a clear understanding of the rules of origin. The argument put forward by Recoverypack would have been shown to be untenable.

Conclusions

Customs Planning is not only about cutting costs and reclaiming underpaid duty but also about identifying and managing risks. The above case is an unfortunate example of a "worst-case" scenario where had one check been carried out (i.e. a classification review) then the risk areas would have been identified and Recoverypack not left exposed to such a large back-duty demand. This case highlights how different elements of customs law are intertwined. Had the classification been correct, then because the goods originated in China, the importer would have seen that they were being investigated for "dumping" and thus potentially liable to ADD (and could have negotiated the contracts of sale accordingly). Once the regulation came into force and had the correct CN code been used, the ADD would have been flagged up at time of first import and such a large back-duty figure would not have accrued.

How ITS can help

International Trade Solutions is one of the leading Customs Consultancies in the UK. Customs Reviews lie at the very heart of our client service offerings. We have over 15 years experience in Customs Law and Practice and our wide-client base allows us to pinpoint and identify risks and vulnerabilities that are industry-specific. For a free first consultation about how Customs Planning could benefit your business call us on (01905) 619229 or email us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .