How U.S. Customs Determines Your Import Compliance Through Reasonable Care



Image: Best PracticeIf you are importing into the U.S., you will likely undergo a review by U.S. Customs and Border Protection. This review could be in the form of a regulatory audit, either a quick response audit, or focused assessment. During this time, Customs will review your transactions and procedures to determine your import compliance and see if you have exercised Reasonable Care, also known as, “Have you done enough to ensure import compliance?”

What is Reasonable Care

Because U.S. Customs expects that importers be knowledgeable and proactive in the conduct of their regulatory responsibilities, during  their review they will determine the degree in which you have tried to meet these regulations. This is referred to as Reasonable Care.

Example of Reasonable Care

There are some very specific areas that form an importer’s foundation of compliance.  While all as laid out in the U.S.Customs and Border Protection Informed Compliance Manual entitled Reasonable Care, we have briefly outlined a `short list`of specific areas below.

Areas in which importers must exercise reasonable care:

All Transactions

  • Use of external or internal experts
  • Review of all customs documentation, inclusive of entry declarations, for accuracy
  • Practice consistency in same or similar transactions across ports and modes of transport
  • Search for errors and make the appropriate adjustments or Prior Disclosures

Merchandise Description and Harmonized Tariff Classification

  • Having procedures in place to ensure that you are fully knowledgeable of the products you are importing including composition, country of origin, end use etc.
  • Describing the merchandise to Customs according to regulations in a detailed manner
  • Ensuring that you are providing the correct tariff classification of the goods
  • Verification of whether your goods are eligible for specific duty-free status

Valuation

  • Create procedures to ensure accuracy of your declared transaction value, per Customs regulations
  • Ensure that you are declaring the correct values to Customs for any transactions between “related” parties
  • Declare assists, commissions, royalties, etc.

Country of Origin / Marking / Quota

  • Create reliable procedures to ensure correct declaration of the country of origin on your entry
  • Mark all imported articles with the country of origin/manufacture
  • Establish documentation processes to determine and ensure that all necessary documentation at time of entry

Intellectual Property Rights

  • Ensure that you have the legal right to import trademark or copyright protected merchandise

Miscellaneous Questions

  • Ensure to file all Participating Government Agency filings, while using the correct type of entry

It is especially important to document all of the above actions, reviews and approvals thoroughly.

Example of a Lack of Reasonable Care

Now that we understand what Reasonable Car is and what ares of international trade it relates to, let us now look at an example of what not to do. Unfortunately, after an audit has revealed non-compliance, we occasionally hear comments such as “I thought I did everything I was supposed to,” or “My broker never told me to do that.”

In a recent ruling by the U.S. Court of International Trade, a company was found negligent in this area. The importer was unsure of the Tariff Classification for the goods they wanted to import into the U.S. While they did contact a Customs Broker, who provided them with three different classifications in 20 minutes, they took not further action to ensure the information they received was correct. The importer chose to use the classification with the lower rate of duty and conducted no further due diligence.

Mistakes like these can be seemingly ‘harmless’ however, can result in being deemed non-compliant.  In this case it was considered negligence not to use the many resources available to help with tariff classification.

Reasonable Care Resources

And now for the good news! There are so many resources available to you to help you towards your import compliance goals. And what is especially important is that knowledge of, access to and use of are considered part of exercising reasonable care.

  • Experienced third parties: lawyers, accountants, customs brokers and trade consultants
  • Government Resources: CROSS database of CBP rulings, H.S. Tariff schedule, informed compliance publications

Create Internal Processes

Another resource is to create an efficient and compliant import process which starts with everyone involved understanding their role and responsibilities. It is especially crucial that importers:

  • Understand their risks and responsibilities
  • Meet Reasonable Care standards with established processes, and
  • Ensure to monitor and enforce standards therefore safeguarding your continued privilege to import

It is important to note that without having the proper knowledge of the responsibilities of an importer, and ensuring that you are both in compliance and have evidence of your actions, you may be at a higher risk for:

  • Penalties
  • Liquidated damages
  • Various customs audits
  • Increased costs of doing international business
  • Supply-chain disruptions and delays
  • Losing your import privileges

On the other hand, being knowledgeable about the expectations and acting with the expected due diligence, while not guaranteeing that you are not subject to an audit, does assure that you are taking full advantage of allowable reductions in duty.

Why conduct an internal import compliance customs audit?

A thorough internal audit will help identify areas of risk while also helping to lay the foundation for your customs compliance plan.

In conclusion, we encourage you to conduct regular internal audits on your Customs transactions to ensure import compliance. Furthermore, use the Customs guidelines in developing your internal controls and standard operating procedures. 

Do you have questions about conducting an internal customs compliance audit? Leave a comment below.

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