02 August 2021 –
Legal experts lay out the best compliance practices for importers of record.
The U.S. Customs & Border Protection has had quite a year, with the USMCA replacing NAFTA, COVID upending its operations and intense scrutiny for immigration policies at the U.S. border.
Last spring, President Joe Biden announced his intent to appoint a new head of customs, Tucson, Arizona, Police Chief Chris Magnus. How will this impact automotive import operations and global supply chains?
The short answer: Customs compliance will be more important than ever, due to the confluence of multiple trends that should have a long-term impact on automotive importers:
- The Biden administration has shown no inclination to end the “Trump Trade War” tariffs, including Section 232 duties on steel and aluminum and Section 301 tariffs on most goods from China.
- Customs is continuing to emphasize enforcement and revenue collection, given the much greater stakes as importers are paying record tariffs.
- The transition to the USMCA rules of origin is especially complicated for automotive companies, which trade a great deal of goods within the USMCA region and also are subject to special rules regarding how to calculate originating status for many automotive goods.
- The transition to the Automated Commercial Environment (ACE) system, which now requires that all import data be submitted electronically, has given Customs data-driven analytical tools to run sophisticated searches to find anomalies in import patterns, including types of HTS misclassifications, undervaluation of entered value and erroneous country-of-origin declarations that can lead to large underpayments of customs duties.
For all these reasons, automotive companies must pay close attention to customs matters whenever they act as the importer of record. To help with these tasks, we’ve compiled customs compliance best practices, including those gleaned from numerous customs disclosures and audits we have conducted over the prior year.
Prepare a customs compliance manual. Based on our experience in recent audits, Customs & Border Protection (CBP) expects importers to go beyond a simple compliance policy and is requiring companies to implement a comprehensive customs compliance manual that includes written, standard procedures and internal controls for each of the relevant elements of reasonable care. A thorough customs manual, as well as established procedures for post-entry checks and audits, can go a long way towards establishing a routine of accuracy in all imports.
Create a customs classification index. Importers should regularly review the products they import and confirm the accuracy of the associated HTSUS tariff classifications codes.
Review product valuations and declared value. Importers should review the methodologies used to calculate the tax value of the products they import and should pay special attention to determine whether the valuation includes off-invoice items, such as royalties and assists.
Coordinate with customs brokers and freight forwarders. Importers should coordinate with their freight forwarders and customs brokers to ensure they are consistently following CBP requirements and should work together regarding required customs recordkeeping. The importer of record must be involved in these areas because the importer of record is ultimately the responsible party.
Conduct an internal customs compliance audit. Larger importers or importers who are at heightened risk for a customs inquiry or scrutiny should perform regular internal customs audits to determine whether existing compliance systems are effective.
Conduct compliance training. Importers should train relevant employees, e.g. customs compliance staff, procurement personnel, and shipping/logistics staff.
Evaluate USMCA/FTA claims. Importers should review their use of FTA or other tariff duty preference programs to ensure they are applying the eligibility criteria properly and maintain the necessary documentation to support their claims. If the goods come from Canada or Mexico, then claims for preferential tariff treatments should be evaluated against the USMCA rules, which are distinct from the NAFTA rules. Some of the key issues to consider include whether: goods meet the regional content requirements, certificates of origin are available, and required documentation is maintained by the company.
Review products for antidumping and countervailing duties. Companies should periodically review their imported goods to check whether they are subject to additional tariffs under various antidumping or countervailing duty orders.
Finally, it is common for many importers to assume that they can pay short attention to customs compliance because “that is taken care of by the customs broker.” But the regulations place responsibility for the accuracy of all information on the importer of record, not the customs broker or freight forwarder. If there are any errors, Customs will look solely to the importer of record as the source of the problem – and as the entity who must pay any underpaid tariffs or penalties. An importer that views a customs broker as its compliance policy has no compliance at all.
Dealing with Customs Requests for Information
Due to the enhanced ability to mine data, Customs is using more Form 28s (request for information) and Form 29s (requests for action). In all cases, these requests need to be taken seriously, as they often are precursors to costly investigations. The receipt of such a request should be taken as a red flag that forces a review of similarly situated merchandise, to see how broadly the issue reaches. Automotive companies engaged in such an exercise also should consider whether it would be prudent to engage in a full voluntary disclosure, which often can avoid any imposition of penalties provided that any underpaid tariffs (and related interest) are made good.
CBP also is more frequently issuing “informed compliance” letters. These letters often are issued to major U.S. importers to review their entries as a hint they may be in line for an audit or are a high risk for violations. Those companies who receive these letters are more likely to be the subject of a “focused assessment” or other CBP audit.
The receipt of this letter means CBP has analyzed the data of an importer of record and likely identified specific problems with its import transactions and put the company on notice it should review and enhance its customs policies. If companies do not follow up on these letters, CBP will ensure any subsequently discover violation leads to a higher penalty, and/or seizure or forfeiture of imported merchandise.
Best practices in a situation include:
- Preparing for a CBP audit by reviewing customs compliance policies and coordinating with its customs broker
- Completing a risk assessment, including with regard to the issues identified in the letter
- Reviewing the risk assessment’s classifications
- Reviewing any post-entry adjustments, royalties, and assists
- Determining whether free trade preferences are supported by relevant documentation
- Evaluating whether there are any other issues in the company’s import data.
While the assessment should start with the issues identified in the letter, the review should go beyond the letter’s scope comprehensive. Further, the review also should thoroughly check the importer’s compliance measures and training, since these will be evaluated by CBP. Any errors should be documented and explained, and a plan should be put in place to strengthen the company’s compliance procedures and prevent their recurrence. The company also should consider filing an initial disclosure.
Gregory Husisian is a partner and litigation attorney with Foley & Lardner LLP, and chair of the firm’s International Trade and National Security Practice. Jenlain Scott is an associate at Foley & Lardner who has worked on a variety of international regulatory and trade matters.