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Reasonable care: What the Heck Is It? (Part 2)

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A few weeks ago, I wrote about a case decided in the Court of International Trade, which determined that a U.S. Importer failed to exercise reasonable care when classifying a product. The Court found that merely consulting a customs broker did not constitute reasonable care. The question then becomes what should importers be doing/

Importers need to establish internal corporate controls aimed at ensuring maximum compliance throughout the supply chain.  Such controls must focus on ensuring the creation of records that document the entire transaction. Incidentally, CBP requires that specific records be kept for five years.

The creation of an import product library to document inputs, components, design, application, and any unique function that might be applicable to product use is a very helpful tool. Among its benefits is the ability to correctly classify imported goods. A manufacturing log for how the good is actually produced with documents to support the production steps should also be maintained.

It is always helpful to seek the safe-haven of a CBP ruling. In recent discussions with a client I inquired about any rulings pending or issued. The client’s response was that it took the CBP too long to issue a ruling so they were not asking for any. This is truly a shortsighted approach to compliance. In addition, I have heard importers say it is too much trouble to ask for a ruling, and if CBP rules differently than anticipated, a can of worms has been opened. Again, compliance is not something to gamble on. Betting on not getting questioned or scrutinized is a risky decision.

Procedures must be established to insure personnel in your import and compliance departments understand the basics of a rather complicated value law. If you are using transaction value, or price paid or payable, you must ensure an arm’s length negotiation for determining the value ultimately declared at time of entry. If you are doing business with a related party, make sure that the relationship does not affect the price paid or payable.  Understanding the terms of sale and the applicability of any assists, or other dutiable elements, is critical.

In addition to the customs requirements of correct classification and value, internal controls must be in place to ensure that the declarations of origin, the use of preference programs, the quantities declared, and all other government agency requirements are in compliance.

I have continually advocated establishing self-examination procedures. As part of this process, engaging a reputable broker as a third- party reviewer is a good compliance force multiplier. Of course, checking the work of the broker through an on-going sampling procedure is advised. Do not be hesitant to ask your broker what internal controls they have in place to ensure your best interests as an importer are protected.  If your broker cannot engage in a substantive discussion about how they can enhance your compliance footprint then it is time for a change.