Import Compliance: Still A Hot Topic

Import Compliance has been a hot topic for U.S. Customs -- and for U.S. importers -- since 1993 when Congress passed the Customs Modernization and Informed Compliance Act (hereafter referred to as The Mod Act). The passage of the Mod Act intensified discussion of import compliance because the Mod Act shifted responsibility for maintaining compliance with import laws and regulations from U.S. Customs to importers. In shifting responsibility for import compliance to importers, the Mod Act additionally mandated that U.S. Customs monitor the status of import compliance and publish its findings in an annual report. One method used by Customs to monitor import compliance and to gather data for its annual import compliance report is a Customs Compliance Audit.

Customs Compliance Audits are conducted on a random basis, but Customs. focus to date has been on high volume importers. Importers who undergo a Customs Compliance Audit and who are found to be less than perfect in import compliance can in most cases avoid costly non-compliance penalties by demonstrating . reasonable care. , i.e., by proving a good faith effort to achieve and maintain compliance with import laws and regulations. One way that importers can demonstrate reasonable care is by developing an import compliance program that is documented in a import compliance manual.

Import compliance manuals should detail an importer. s import compliance procedures, describing both the overall compliance strategy and the specific day-to-day responsibilities and activities which must be performed. Additionally, import compliance manuals should deal with all major Customs issues, including import controls, import procedures and import record-keeping requirements. The balance of this article will discuss each of the elements that should be contained in an import compliance manual and provide importers some guidance as to the issues that these elements should address.

Import Controls: US import controls arise from concerns related to the U.S. economy, the preservation of domestic plant and animal life, consumer health and consumer well-being. Consequently, as concern over these matters shifts, import controls will likely be subjected to change. Import controls take the form of import prohibitions, import restrictions, specific product requirements and country of origin marking requirements.

Import prohibitions block the entry of certain products into the U.S. and are based primarily on country of origin, product type, andor product manufacturing practices. The U.S., for example prohibits the entry of products of Cuban origin, illegal narcotics and goods made with convict or child labor. Goods which are subject to import prohibitions are generally refused entry at the U.S. border and are subject to seizure by U.S. Customs.

Import restrictions (quotas) limit the entry of certain products into the U.S. and are based primarily on country of origin and product type. The U.S., for example limits the entry of various fibers and textiles by subjecting such goods to numerical quotas. Goods which exceed import restrictions are generally refused entry at the U.S. border and must be trans-shipped elsewhere.

Specific product requirements are typically imposed by different U.S. government agencies and generally fall into the following broad categories: product specifications, product testing requirements, product certification requirements, product labeling requirements, product packaging requirements and product documentary requirements. Imported products which do not comply with US government agencies. "special product requirements" may be refused entry, seized at the border, assessed a monetary penalty or subjected to a program of forced compliance.

Country of origin marking requirements are relevant to all imported products. Country of origin is a technical term which often means more than just where a product came from. The US has approximately 20 different definitions of origin for imported products. The default position deals primarily with substantial transformation, i.e., production which results in a new or different good that has a name, character and use different from those of its constituent materials. In addition to the default position, however, there are various other origin rules that are applied in the US. Some are applicable to certain product categories (rules of origin for apparel); others are applicable to imports from certain geographical regions (NAFTA origin rules, Caribbean Basin origin rules) or to imports from certain countries (Israel US Free Trade Agreement and countries designated as beneficiary countries under the Generalized System of Preferences). Country of origin determination is important for many reasons: preferential duty program access either under US Customs Law or under a trade agreement, import control management vis a vis embargoed countries and countries subject to product quotas, consumer end user notification, statistical reporting, certificate of origin issuance and product marking requirements. Imported products on which there has been an incorrect origin determination or a misrepresentation of origin may be refused entry, seized at the border, assessed a monetary penalty or subjected to a program of forced compliance.

Determination of the relevant import controls for imported products is a key component of any import compliance program because it sets the stage as to what and how much U.S. importers can import (import prohibitions and import restrictions) and as to whether or not U.S. importers must deal with any specific product requirements or any country of origin marking requirements in importing products. It is also important in that it will safeguard U.S. importers from the imposition of monetary fines and penalties.

Import Procedures: U.S. import procedures describe the procedures that U.S. importers must follow in entering products into the U.S.. U.S. import procedures involve primarily the classification of imported products, the valuation of imported products and the preparation of the required documentation for imported products.

The classification of imported products is the procedure that is used to assign an imported product a harmonized code number for duty determination purposes. The United States, like most other countries in the world, subscribes to the Harmonized Tariff Schedule (HTS) to classify products for import export purposes. Although the HTS achieves harmonization with regard to broad product categories, there is often some room to maneuver with regard to the applicable harmonized code for a specific product, i.e. there does not appear to be one absolutely correct product code for each imported product. The choice of a harmonized code for an imported product is an important determination, however, in that it impacts the duty rate to be applied to a product as duty rates vary product by product. It does not make sense, therefore, to accept or select one harmonized code over another, without also considering the applicable duty rates. Clearly, however, whatever HTS number is selected should be defensible with Customs as incorrect classification subjects an importer to monetary fines. To be on the safe side, an importer might even want to obtain a binding ruling from Customs with regard to the correct harmonized number.