10

The Import Supply Chain

Purchasing, Operations, Documentation, and Compliance Management

Imports are a significant source of low-cost goods and represent over 70 percent of the global supply chain. The United States imports over $220 billion a month. Almost all exporters import and almost all exporters have returned merchandise.

Understanding regulations and how they apply to inbound supply chain operations is both an art and a science reviewed in granular detail on the following pages.

IMPORT MANAGEMENT

Import management engages several key areas:

Quality global sourcing

Creating a distribution system that follows and integrates well with the inbound logistics

Understanding the import regulations and managing trade compliance

Sourcing

The key to successful global sourcing is as follows:

Understanding landed cost modeling

Access to diverse and multiple suppliers and vendors

Negotiating favorable contracts

Developing successful vendor relationships

Driving risk and spend from the supply chain

Creating a Distribution System That Follows and Integrates Well with Inbound Logistics

The keys to accomplishing a successful domestic side to the import process are as follows:

Coordinating purchasing with demand planning, warehousing, and distribution capabilities

Utilizing technology successfully in integrating the compatible verticals who are connected to the inbound and domestic process

Utilization of third-party vendor services to help manage the supply chain

Negotiating favorable storage, fulfillment, courier, and trucking contracts

Including those involved with packing, marking, and labeling needs to make sure these are also integrated into the inbound process

OVERVIEW

For companies to succeed in global sourcing and importing, knowledge of and practical application in the inbound business model must be present.

Paying attention to the details of very comprehensive import regulations is a necessary component of import management.

The creation of SOPs, protocols, and business processes are dependent on an understanding of how the government wants you to be compliant, which is outlined as follows.

CUSTOMS REGULATIONS AND IMPORT TRADE COMPLIANCE

Customs regulations goes back to the late 1700s, when our country was first formed. Regulations have changed and matured and have always adopted to the changing economy and how inbound supply chains operate.

The events of 9/11 seriously impacted customs regulations, with residual effects into the second decade of the new millennium.

Knowledge and practical application of these regulations is a necessary evil of operating in global trade.

The Customs Modernization Act of 1993 is the basis of current U.S. import regulations enforced by the Bureau of U.S. Customs and Border Protection (CBP).

Under the import regulations, importers and their customs brokers are required to be compliant with U.S. import regulations. The Mod Act brought broker actions and broker compliance into the penalty fold of CBP. Failure to comply with the Mod Act may result in fines, penalties, and other consequences, including shipment delays.

The Customs Modernization Act outlined strict interpretations of U.S. import rules and regulations and a process for strict enforcement. The Mod Act also funded the effort of enforcing these regulations. Many industry insiders view the additional enforcement efforts to CBP, continuing to maintain a steady revenue flow as duty rates have fallen, and the implementation of many free trade agreements has reduced the amount of monies raised by CBP. These new fines and penalties are an avenue for continued revenue into the U.S. government.

Determining the correct import duties and taxes, managing import compliance, global security efforts, and utilizing a customs broker all add expense to the final landed cost of a product. Import compliance management has taken on a new level of sophistication and focused initiative of the importer that is unprecedented. Managing greater control over the purchasing process allows the importer to exercise greater control over costs while meeting its compliance responsibilities.

THE KEY SERVICE PROVIDER: CUSTOMHOUSE BROKERS

Customhouse brokers are typically part of freight forwarding organizations and/or international transportation service providers. Customhouse brokers are licensed by customs to clear goods into the United States through a port of entry on behalf of importers and to collect duty and taxes on behalf of Customs and Border Protection.

A customs broker does not have to be utilized in clearing your goods. Customs does allow an importer to clear the goods on its own behalf. However, it makes good sense to employ a broker to work on your behalf, as brokers are familiar with the customs laws, local practice, and functionality of the clearance process. Custom brokers will work with your company to assure timely and accurate release of your product through the customs process. Although brokers charge for their service, they are usually a cost-effective option in the long run.

DUTIES AND TAXES

The amount of duty to be paid on an import shipment is determined by two key factors: the country of origin of the goods and the Harmonized Tariff System Classification Number (HTS). Secondary issues such as circumstances of import, utilization of the goods (such as samples), value, and identification of the ultimate consignee may also influence the applicable rate of duty.

CBP issues informed compliance publications in addition to the resources available on its website. Informed compliance publications focus on specific subject matter ranging from harmonized tariff classification to valuation to classification of specific types of items such as glass articles and aircraft parts. Importers are required to correctly classify their products and may utilize these publications as part of their due diligence in addition to consulting with their customs broker or even the CBP itself.

SELECTING A CUSTOMHOUSE BROKER

In choosing a customhouse broker, it is important to find a broker that is conducive to your company’s size and needs. Friendly competitors, carriers, international trade organizations, and customs in your inbound gateway can all be sources used to assist you in making the right selection.

While customhouse brokers assist in the clearance process and your company may delegate clearance responsibilities to them, it is important to recognize that you cannot defer all liability associated with proper compliance to them. CBP requires importers to exercise reasonable care, supervision, and control over their import activity. Thus, it is important that all importers understand the basics of import regulations and how it applies to their specific inbound activity.

Customhouse brokers are industry experts. Customs brokers are required to have a valid customs power of attorney on file from the importer to conduct customs business on behalf of the importer. The power of attorney legally authorizes the customhouse broker to act on behalf of the importer, legally binding the importer to many legal obligations.

Extreme care needs be exercised in this selection process. Unfortunately, many brokers operate at a level below the reasonable care and compliance standard that is legally required of them. This lack of reasonable care and compliance equates to fines and penalties for the importer and broker.

In selecting a customhouse brokerage service, the following steps should be taken into consideration:

Assign a qualified in-house management individual to take ownership of the brokerage relationship, preferably someone who is knowledgeable about customs regulations.

Visit its offices to confirm all representations.

Determine its technology capability and ability to interface with your IT requirements, along with an electronic exchange with CBP (ACE).

Confirm that the brokerage operation has qualified customs brokerage personnel with at least five years of operational experience in handling customs entries.

Determine its ability to assist you on the logistics side in freight and transportation services.

Verify the number of license holders in the company and how they supervise the operations staff.

Confirm that the operations staff receives training on a regular basis.

Verify that the operations staff has experience in valuation concepts, harmonized tariff classification, and country of origin determinations.

Ask questions regarding compliance knowledge and value-added services to importer clients, including in-house training and webinars.

Confirm how the broker will share clearance information, including entry status and reports with clients.

Ask for references and contact the references to discuss their experiences with the broker.

Internal Supervision and Control

The importer of record is responsible for operating its inbound supply chain in compliance with U.S. import regulations. Written procedures encompassing compliance help mitigate the risk of being noncompliant with CBP regulations. Internal supervision and control represent a standardized measure to control the correctness of information being provided to customs and any other government agency (OGA) in relation to entering the commerce of the United States. These procedures should include monitoring all communications made on behalf of the importer to CBP by the broker.

In the past, it was a common practice for the importer to fully outsource the day-to-day responsibilities to the broker, allow the broker to handle the entire import process, and compensate the broker for his or her efforts. Currently, many importers still rely heavily on their brokers, which is a noncom-pliant practice. For example, the foreign vendor emails the import notification to the broker, and the broker handles the clearance and sends the importer an alert once the goods have cleared, along with an invoice. This practice is not compliant, as there are many decisions that need to be made prior to the time of entry on which the importer must weigh in. It is a lack of supervision and control to allow a brokerage provider to make entry decisions on behalf of the importer. Valuation verification, country of origin verification, and harmonize tariff classification are just a few of these decisions.

Importers who are exercising supervision and control have established an import notification process to validate the shipment, substantiate the validity of the overseas vendor, and provide the authorization to ship. This validation process is crucial to monitor global security guidelines. The brokerage provider is unable to make this validation on its own. Importers match up purchase order numbers and invoice transactions to properly validate the shipment.

This validation is usually done and confirmed when the importer sends a letter of notification to the broker authorizing customs clearance. Once the broker receives this letter of notification and instruction, the entry may then be created and tendered to customs. At this point the entry process has only just begun. The importer must review the final entry to determine that all statements made to CBP are accurate, including but not limited to value, origin, classification, description, and quantity.

The importer must be aware of all amendments to the entry. This should be controlled in a proactive manner utilizing electronic notification and validation from the broker to the importer for review and validation. Failure to implement such a process could result in entry corrections and amendments being made without the knowledge of the importer.

Customs Business

Customs business is defined as activities involving transactions with customs concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties and taxes, and the preparation of documents intended to be filed with customs. Customs business does not include corporate compliance activity. This is an important distinction, as a parent company compliance office can provide direction and exercise reasonable care to its subsidiary offices without having to have a licensed person overseeing the compliance activity.

Harmonized Tariff Classification

Importers are responsible for ensuring that every harmonize number declared on the import declaration is accurate based on the guidelines established in the HTSUS. Importers are also responsible for knowing the principles of classification to monitor and control the advice tendered by third-party service providers like customhouse brokers.

Classification of commodities is a very detailed process. The responsibility lies on the importer to ensure that all classifications being tendered in relation to their imported products are accurate. This entails a specific knowledge prerequisite that the importer is expected to have to validate the harmonized classifications. The principles of proper classification are not a simple process, but proper classification is an attainable goal. Specific training on classification principles is needed to properly navigate the HTSUS.

Once again, this is an area where many importers have again relied on the internal expertise of the brokerage provider to select the classifications for the entry declarations. This common practice is noncompliant and represents a lack of supervision and control and a failure to meet import reasonable care standards. The importer is responsible for giving the broker full and complete information to properly make entry or provide advice as how to make entry. This includes the harmonized tariff classification information as crucial information required for entry.

It is also a common noncompliant practice that brokerage providers rely on a list provided by the importer to classify their imported commodities, without validation that these numbers are accurate. Customs takes the position that the importer knows its product specifications better than the broker. There may be details omitted from the standard commercial invoice that do not properly represent the full and complete description enough for the broker to properly classify a product. In this case, it is imperative that the importer manage the harmonized classification process to ensure correct reporting information.

Failure to properly supervise this process will result in false information being tendered to customs. This false information is legally viewed as a possible penalty case under the framework of a false statement, act, or omission.

Formal training in the proper principles of classification can enable the importer to meet its classification responsibility. Once trained, the importer can accurately provide the broker with this full and complete information required for harmonized classification declaration.

GLOBAL SECURITY MANAGEMENT: CUSTOMS-TRADE PARTNERSHIP AGAINST TERRORISM PARTICIPATION

Security is now an integral part of global supply chains. Customs and Border Protection (CBP) implemented the Customs-Trade Partnership against Terrorism in 2002 as a voluntary program open to importers, carriers, consolidators, brokers, and highway carriers.

The C-TPAT program has changed and matured since its initial inception. The program now incorporates mutual recognition agreements between over a dozen countries that also have their national supply chain security programs. C-TPAT has also expanded to include exporters and the creation of the Five Step Risk Assessment, and there is an ability to monitor business partners’ C-TPAT status via the shared web portal.

Membership in the C-TPAT program has many benefits, including the following:

Reduced compliance exams

Reduced number of inspections

Reduce waiting time for cargo to be examined

Cargo selected for exam becoming priority and moving to the front of the exam line

Decreased transportation times

Assignment of CBP supply chain security specialist

Access to FAST (Free & Secure Trade) lanes at Mexico and Canada borders

Invitation to participate in C-TPAT training seminars offered by CBP

Incorporation of security practices into existing logistical management methods

Greater supply chain integrity

Reduced freight surcharges, such as exam fees and demurrage

Meeting C-TPAT customer requirements

Lower insurance costs

Reduced theft/loss of inventory

Mutual recognition, as CBP has signed Mutual Recognition Arrangements with its top trading partners, including China, Canada, Mexico, Japan, and the European Union. This allows freight exported to move through participating countries’ customs more quickly.

When another event occurs that closes the borders, C-TPAT member shipments being prioritized when the borders reopen

Mitigation of fines and penalties

Five to eight times fewer exams than non-CTPAT importers

C-TPAT participants are encouraged to examine their supply chain processes and analyze their security strengths and vulnerabilities. Security weaknesses may lie within sloppy hiring practices to not tracking container movements from the warehouse to the port to sourcing from a country that has social conditions making it susceptible to terrorist activity.

Companies considering participation in the program must review the eligibility requirements and the security criteria of the program. This is best completed through a security assessment to determine where security gaps exist in the supply chain between what “must” be in place to participate in the program and what would be “nice to have.” The individual security criteria will differ depending on whether the company is entering the program as an importer, exporter, broker, and so on.

CBP accepts the C-TPAT application online and based on the responses to the security criteria. CBP will then schedule a validation visit to ensure the responses provided electronically are indeed true and correct. At the validation visit, CBP will be confirming the responses to see evidence of implementation of procedures, training, badging—anything that was included as part of the security profile submitted to CBP will be thoroughly reviewed during the validation meeting.

In 2017, there is still a need for companies to join the C-TPAT program while it is a voluntary initiative. Contact Kelly Raia at [email protected] or (516) 236-5716 for support on this program.

C-TPAT Participant Categories

AIR CARRIERS

Consolidators (airfreight consolidators, ocean transport intermediaries, and non-vessel operating common carriers [NVOCC])

Customs brokers

EXPORTERS

Foreign manufacturers

Highway carriers

Importers

Long haul carriers in Mexico

Marine port authority and terminal operators

Rail carriers

Sea carriers

Third-party logistics providers (3pl)

Global security management needs to include a review of the cargo from the point of origin overseas to the point of receipt in the United States. However, depending on the role of the service provider or exporter or importer, the criteria may vary. Minimally, typical security assessment will include container and trailer security, advanced shipment notification, product identification, shipping controls, photo identification of drivers, visitors, and contractors, employee access controls, company badges, hiring practices, container inspection, tracking containers and shipments, surveillance cameras, alarm systems, lighting, physical security maintenance, separation policies, integrity of documentation, seal controls, visitor logs, resolving discrepancies in receiving of cargo, seal verification, protection of information, and information technology controls, to name a few. Training employees on threat awareness to the supply chain will also be part of the threat assessment.

Supervision and control of where merchandise is sourced and background checks on overseas vendors will also be scrutinized. A detailed knowledge of the storage and handling of all imported cargo is the responsibility of the importer, even when delegating such services to outside service providers like freight forwarders and common carriers.

COMMERCIAL INVOICE REQUIREMENTS

Documentation is one of the most critical aspects of import regulatory compliance.

The commercial import invoice is the engine that drives the international shipment and clearance process. Incorrect information or a misstatement of facts can inadvertently lead to circumvention of governing authorities from properly exercising control and safety over import shipments, resulting in potential devastation of domestic property and even lives.

Commercial invoice requirements are contained within the Code of Federal Regulations. Correct import declaration reporting information is required for all importers and is part of the importer’s basic bond condition for providing a complete entry and entry declaration.

Many importers are unaware that there are actual requirements for an import invoice to be presented to CBP. It is a common practice to judge a complete invoice by the amount of information that is contained on the document rather than the information itself. The practice of submission of incomplete information is noncompliant and may result in a fine or penalty. Liquidated damage amounts can be assessed at the value of the merchandise plus estimated duties.

There are two types of invoices associated with an import transaction—a commercial invoice and a pro forma invoice. The foreign shipper or manufacturer prepares the commercial invoice. The pro forma invoice is prepared by the U.S. importer of record in the event that the commercial invoice lacks the required information needed to meet the customs regulatory standards or does not contain accurate information.

The importer is expected to review the contents of the invoice to affirm the correctness of information on a transaction basis. Random audits by the importer of the import invoice in a post-entry format do not meet the regulatory requirement of supervision and control. Generally, brokers use the foreign shipper’s invoice as the key source of reference in the import declaration. The information contained in each invoice must be properly reviewed prior to submission to the brokerage provider and well before the customs entry declaration process. This may be viewed as a delay in the import supply chain. However, effective incorporation of this process is mandatory for compliance and security concerns.

For specific merchandise, there may be additional invoice requirements. For most imports, the importer should ensure the following information is contained on the import invoice:

The name and address of the foreign shipper or manufacturer

The name and address of the importer of record and consignee

A full and accurate description of the imported merchandise

Quantity of the merchandise being imported, with net weights and measures included

The unit price of the imported commodity

Terms of sale associated with the international transaction

Invoice date

Invoice number and purchase order number

A detailed breakdown of all prepaid freight and insurance charges associated with the transaction of sale

All discounts offered and/or taken

Any commissions

Any royalties

A complete invoice value

Country of origin of the imported merchandise

A name of a responsible person as the preparation party of the invoice

A statement of use to establish special entry procedure

In addition, the invoice must be in the English language or have an attached translation.

DUTY PAYMENT MANAGEMENT

Importers are required to have a bond on file with CBP. The first bond condition is for the importer to pay duties, fees, and taxes on a timely basis. It is the importer’s responsibility to establish and verify that all duties, fees, and taxes are being submitted in accordance with CBP regulations.

The liability for payment must be met in most cases within ten days from the date of customs clearance. The payment may be made directly from the importer to customs via check or electronic payment methods of the Automated Clearing House (ACH) Debit or ACH Credit accounts.

As a common practice, many importers use the services of the brokerage provider to submit duty payment to customs on their behalf. It is another service that the brokerage provider advances the duty payment on behalf of the importer. Most companies like this offered added service that the brokerage community provides, as it minimizes the strain on the importer’s accounting practices to validate correctness of information and issue payment to customs within a quick turnaround timeframe. Since the broker is advancing the duty payment, the importer can take its time in the validation process, as most brokers afford thirty-day payment terms with their importers.

It is important to note that the use of this service does not relieve the importer of its responsibility to pay duties, taxes, and fees to CBP. The supervision of how the duty payment process is being handled is the responsibility of the importer. Records of timely payment are maintained by the broker in cases where this advancement is being handled. Copies of the receipts of payments need be reviewed and retained by the importer to ensure the broker is paying the duties on time.

In the customs audit process, an importer will be asked how it manages the duty payment process. It is an unacceptable answer to simply state, “my broker pays the duty for us.” A system of accountability needs to be implemented to ensure that timely payment is being handled, and a level of understanding of just how it is being managed needs to be attained by the importer. If the importer is receiving proof of duty payment, it is then managing the duty payment process.

Copies of the final ACH statement copy will serve as proof of payment. Copies of checks with a receipted copy of the CBP 7501 Customs Entry summary will also represent timely payment as well as a copy of the ACE report reflecting payment received. A stamped copy of the 7501 is not proof of payment; it only represents entry submission.

INFORMED COMPLIANCE

It is the responsibility of every importer, as established in the Mod Act, to meet and maintain “informed compliance” standards of increased supervision, education, and training on industry-specific topics associated with the duties and responsibilities of importers of record.

Many importers do not recognize this responsibility and have not gone out to seek formal education and training on industry-specific issues associated with their day-to-day job responsibilities. There are many issues being handled on a common practice basis without knowledge of the specifics of rules and regulatory procedures established by customs in the customs regulations.

Many companies rely on the knowledge of a few select individuals within their organizations for compliance awareness once the level of informed compliance has been achieved. This is a legally accepted practice; however, operationally, an importer can never be overtrained or overeducated. Informed compliance is about remaining current about the ongoing changes in the import environment. Keeping current is a difficult goal without a schedule and action plan of continued education.

Knowledge of reference of the import regulations and harmonized tariff system is essential to evidence compliance awareness. The avenue to attain those skills is called informed compliance. External training seminars have proven to be very productive for many importers. Informed compliance is mandatory to minimize and eliminate costly fines and penalties associated with an audit or operational practices below regulatory standards. Every importer should use resources available to elevate the level of import awareness and regulatory knowledge.

REASONABLE CARE STANDARD

Under the reasonable care standard, an importer

Should seek guidance from customs for proper compliance using the formal rulings program

Should consult with “qualified experts” like a customs broker or attorney or a consultant specializing in customs law

If using a broker, must provide such broker with full and complete enough information for the broker to properly make an entry (import declaration) or for the broker to provide advice as how to make an entry

When appropriate, obtain analyses from accredited labs to determine technical qualities of an imported product

Use in-house employees like counsel, a customs administrator, or, if valuation is an issue, a corporate controller, who has experience and knowledge of customs laws, regulations, and procedures

Must follow any binding ruling requested and received from customs

If importing any textile or apparel product, ensure that the products are accompanied by documentation, packaging, and labeling that are accurate as to its origin

Cannot classify own identical merchandise or value own identical transactions in different ways

Must notify customs when receiving different treatment by customs for the same goods in different transactions or at different ports

Must examine entries (import declarations prepared by the broker) to determine accuracy in classification and valuation

RECORD RETENTION

Importers are responsible for establishing a record retention system that maintains all records relative to an import transaction for five years from the date of entry of the merchandise into the commerce of the United States. Many importers do not keep satisfactory records in accordance with the customs regulations.

In their regulatory audits, customs finds multiple errors associated with record keeping. Importers must be aware of all documents that they are responsible for maintaining, as outlined in the (a)1(a) listing of the customs regulations.

All records associated with the import transaction from the point of purchase inquiry throughout the customs clearance process up to the final disposition of the merchandise at the ultimate place of delivery need to be retained. Once the required documents are identified, every importer needs to create a standard operating procedure to ensure that the documents are properly collected on a transactional basis.

Third-party service providers, like brokers and freight forwarders, need to be a part of this process to ensure that all documents that are generated by their services are duly tendered to the importer. The importer is responsible for keeping these mentioned records. This legal obligation cannot be delegated to the third-party service provider. Each broker has its own record-keeping requirements, which are not necessarily the same as the importer’s requirements. Many brokers do not properly advise importers of the full obligation to maintain correct records.

Importers are not only responsible for keeping the records but must also be able to retrieve their records in a reasonable amount of time. Records that are maintained yet unattainable do not meet the customs regulatory standards of compliance. Record retrieval processes should be implemented to exercise an importer’s ability to control all requests for additional or duplicate documentation made by customs on any customs entry declaration.

VALUATION

The importer of record is responsible for ensuring that proper valuation principles are applied to each import transaction and subsequent declarations. Falsely declared values corrupt trade statistics and possibly defraud the government from collecting the correct amount of revenue. Valuation verifications and the knowledge of valuation principles are crucial to safeguarding your company from unforeseen customs penalties for misstatement of valuation facts.

There are many variables to valuation declarations that are important to customs at the entry level. The ability to recognize the proper elements of valuation is the responsibility of the importer of record. Customs holds the importer liable for misstatements of fact on each entry. It is the importer’s responsibility to correct all declarations previously made should the importer discover new information that may change the facts.

There are instances of accounting that importers use in generally accepted accounting principles that are not acceptable to customs. For example, defective merchandise shipments that are credited between a buyer and seller of imported merchandise in some cases are amended by simply replacing the items at no charge. The next shipment will arrive with a declared value for a portion of the merchandise to offset the defective values previously imported. General accounting principles allow such a practice. However, the position of CBP is clear in that the second shipment should be valued at its full price regardless of the credit situation because of the defective merchandise circumstance.

Importers are responsible for knowing the regulations and applications of the valuation principles and concepts on a transactional basis. Customs has several methods of valuation that can be used to value imported merchandise:

Transaction value. Price paid or payable between the buyer and seller

Transaction value of identical or similar merchandise. Price paid or payable between another buyer and another seller of imported merchandise imported at or around the same time from the same region of the world

Deductive value. Price after importation and U.S. resale minus all nondutiable charges

Computed value. Price of the labor, raw materials, assembly, and so on

Value if no other value can be determined. An assigned appraised value by customs

Most transactions are handled based on the transaction value method. Customs does have the authority to use alternative methods as described previously to determine a more accurate value than the original value declared.

Importers are responsible for knowing the methods of valuation to assess whether imported merchandise has been properly liquidated and agreed to by customs. There are several other valuation concepts that are very crucial to the import declaration, including but not limited to commissions. There exist two types of commissions:

Buying commissions

Selling commissions

Buying commissions are not subject to duties and do not have to be included in the import declarations value. Selling commissions are dutiable and must be included in every import valuation declaration. Details of valuation are complex, and with each variation of a sales agreement, there are issues of valuation compliance that must be reviewed. The notion to over declare is a noncompliant practice. Customs is only interested in the reporting of true and accurate information.

COUNTRY OF ORIGIN MARKING

Importers are responsible for ensuring that all merchandise is properly marked upon entry into the United States. Import documentation must also indicate the proper country of origin on all shipments, as a separate invoice requirement.

Many importers are not aware of the specific requirements of marking for goods imported into the United States to indicate to the ultimate purchaser the country of origin of the merchandise.

There are different country of origin rules for different commodities. The importer must first be aware of the definition of country of origin. For most articles, except for textile apparel products, the country of origin is the country of growth, manufacture, or production.

Unless exempted, a permanent marking is required on each imported article. In cases where the item itself cannot be individually marked, customs may accept the marking on the outer carton, as it will indicate to the ultimate purchaser the country of origin of the product. The customs regulations contain a complete listing of exempt articles to the marking requirements, which is known as the “J list.”

For those instances in which customs believes imported merchandise does not comply with the legal requirements, the importer may be demanded to redeliver imported merchandise that was previously released from customs custody up to thirty days from the date of customs release. If the merchandise has not been released, customs can detain it by the seizure process and demand that goods be properly marked before they are released into the commerce of the United States. Customs can also, however, release the goods to the importer to be marked at the importer’s establishment pending proof of such marking.

POWER OF ATTORNEY MANAGEMENT

All importers should properly manage the number of customs brokers that are conducting customs business on their behalf. Proper control of customs power of attorneys needs to be established and maintained to ensure that only qualified persons and companies are presenting entry declarations to CBP.

The power of attorney is established for the protection of the importer of record to control the brokers who are conducting customs business on behalf of their importer clients. It is a customs requirement that a customs broker, who is authorized to conduct customs business on behalf of an importer, must have a valid power of attorney to conduct such business. If the broker does not have a valid power of attorney on file, he or she may face a penalty of up to the value of the merchandise or loss of license.

Many importers have several brokers who were issued a customs power of attorney. Customs brokers become an extension of the traffic department of the importer. This authority is dangerous when not properly managed. Too many customs brokers create an increased liability for error and mismanagement. Supervision and control over brokerage providers becomes an unattainable goal when there are too many brokers and the number of brokers to manage is not manageable.

Importers should perform extensive reviews of all brokerage services to critique the internal expertise being given to each entry. The average years of experience in the operational levels of the brokerage service that handles over 90 percent of the work volume associated with the clearance process needs to be at least five years.

It is the responsibility of the importer to properly manage the performance of the broker and regulate the brokers who meet satisfactory levels of compliance with the customs power of attorney issuance management process. Only compliant and operationally effective brokers should be authorized to conduct customs business on behalf of importers.

Power of attorney management is a tool importers have available to implement this requirement. Brokers who fall below the importer’s standard of compliance should have their power of attorney revoked by letter of revocation sent to the port director of customs at the port of entry.

All powers of attorney should be dated with a date of expiration not to exceed an initial period of thirty days for renewal pending proven performance. Once the importer is satisfied with the broker’s performance, the power of attorney expiration date should not be issued for a period that exceeds one year.

ULTIMATE CONSIGNEE

For most import transactions, the importer of record and the ultimate consignee are the same. The view of customs is that the ultimate consignee caused the import to occur and is one of the responsible parties to the import transaction. Therefore, the ultimate consignee can be held accountable for regulatory requirements.

This view may have serious consequences for a company that purchases goods on a delivered duty paid (DDP) or free domicile basis. Under the Incoterms, this term of sale dictates that the seller is responsible for the payment of duties, freight, and customs clearance. Ultimate consignees mistakenly believe they can avoid the normal importing process and liabilities that go along with importing.

Customs requires that if a buyer causes the import, the buyer must have the usual records required to import. This includes the bill of lading, entry documents, purchase order, and invoice. Records must also be retained in accordance with the usual five-year period.

WHAT YOU SHOULD KNOW ABOUT “DRAWBACK”

Drawback is a privilege granted by customs. This privilege allows an importer to collect 99 percent of duties previously paid by exporting the merchandise from the United States or destroying the imported goods under customs supervision. It is important to note that drawback is a “privilege” that can be taken away if customs considers the drawback claimant is pursuing fraudulent claims for refunds.

There are three main types of drawback:

1. Unused merchandise drawback. A 99 percent refund of duties paid on imported merchandise that is exported in the same condition as when imported and remains “unused” in the United States. The importer may claim a drawback for three years from the date of importation.

2. Rejected merchandise drawback. A 99 percent refund on imported merchandise that is received not conforming to the importer’s standards of approval and/or the standards of the Wildlife Service and customs. The importer may claim a drawback for three years from the date of importation.

3. Manufacturing drawback. A 99 percent refund of duties paid on imported merchandise that is received and is to be further processed or manufactured in the United States.

Customs will allow a 99 percent refund of duties paid on the imported merchandise for a period of up to five years from the date of importation. Unless waived, all merchandise must be examined by customs prior to export to qualify for the drawback privilege. A filer notifies customs of his or her intent to file a drawback claim about a drawback by filing a “Notice of Intent.”

An importer must allow at least five working days prior to the export of the merchandise. Customs will notify the drawback claimant within two working days of their intent to examine or waive the examination.

Drawback is a fantastic opportunity to recover previously paid duties on exportation and/or destruction. Careful attention must be paid to time limitations and correctness of information declared to customs.

Customs can pursue costly fines and penalties against a drawback claimant for incorrect claims submitted for refund. Such claims are viewed as a fraudulent act, punishable by a penalty up to the domestic value of the merchandise.

RETURNS AND REPAIRS: THE MOST COST-EFFECTIVE OPTIONS

Many exporters have merchandise returned for repair with the intention that once it is repaired, it will be re-exported. The best situation to be in as an exporter in this circumstance is to control the entire export/import process from beginning to end. Being certain documentation must be presented to customs at both ends, to prevent duplication of payment of duties and taxes one party should handle both the inbound and outbound transportation to ease the process. One forwarder/carrier has the export and the same entity may handle the import and subsequent re-export of the repaired piece. This will provide the best economies of scale, ease of document/clearance handling, and the lowest cost.

Too often, returned freight just shows up for clearance. The exporter (importer now) is alerted late and must pay demurrage, and the whole process gets complicated. The use of one forwarder eliminates many of the problems. Returned freight still must be cleared through customs, but if handled properly, one will not have to pay duties and taxes on the value previously exported.

The key is to provide communication and shipping instructions to your overseas customers so they will know whom to contact for shipping instead of just sending it by any means available. For merchandise that is just being returned, one must go through a clearance process, and no duties or taxes must be paid if the documentation and clearance are processed correctly. Use of a qualified forwarder and customs brokers will make the return process run more smoothly and protect your need for competitive pricing.

Quality logistics becomes an integral component of your customer service capability and provides a competitive advantage.

IMPORT GOODS DAMAGED DURING INSPECTION

In today’s security-ridden environment, importers have found themselves with damaged shipments following inspection. This is concerning on several fronts, as the damage could have been caused due to the nature of the inspection.

If it is found by the importer that the shipment was damaged during inspection, the importer must follow standard government guidelines for filing a claim. However, if the government can substantiate its case that there was good reason to handle the inspection in a destructive manner, there will be no way to recover the loss through this venue.

An importer’s best practice is to ensure the description of the goods on all documents is correct. The packing should be what would normally contain such product. Tracking the shipment, from point of pickup from the supplier to carrier loading and monitoring the customs clearance, must be done. This is an importer’s best assurance to keep track of its shipment and to be able to track whether damage occurred due to an inspection.

CONCLUDING REMARKS

This chapter reinforces the awareness of all the import issues and presents the best resolutions to manage import compliance and inbound supply chain effectively.

The ultimate measure of import success is the successful importation, without hassle, in compliance and a costing structure that allows for high profit margins, which can be accomplished following the thoughts outlined in this section.