U.S. Customs and Border Protection (CBP) must inspect cargo in their efforts to enforce US laws and help protect US Citizens. Importers need quick access to their goods to make a profit. As expected, these two things sometimes collide. Personally, I appreciate the overwhelming job that CBP performs to ensure that the US and its borders remain safe. Yet I am frequently reminded by the objections of my clients that an exam is costing them money. We can actually end this article before it begins with a simple term - Customs Compliance.
Vantec Hitachi Transport System (USA), Inc. is a strong proponent for effective importer compliance programs. Importers need to understand they are liable for EVERYTHING in the import transaction. Yes, they can certainly outsource some functions such as actual tax return filings (i.e., the customs entry), but information contained within the entry is 100 percent the responsibility of the importer. Think about some of these next questions … Do you have a binding ruling? Are you using the correct tariff number? Did you declare the correct value? Are there any assists? How about FDAUSDACPSCFCCEPADOT? Are the goods legally marked? Making sure all of your goods are in compliance BEFORE you import them can save you a lot of hassles. Ok, now that my disclaimer is out of the way, let’s tackle avoiding customs exams.
Keep in mind that when I say “exam,” I am referring to two basic types. Exam Type #1 can happen when cargo first arrives at the port; CBP won’t release your cargo without inspecting or X-raying it. The exam takes a couple of days, maybe a week, and then the cargo is released. Everyone is happy … until a few weeks later when Exam Type #2 comes in the mail, disguised as a “Request for Information” from CBP. It is better known by its form number, CF28.
Exam Type #1 is a physical cargo exam. If you look at the sheer volume of cargo arriving in the US, very few shipments actually undergo a physical exam. CBP has its criteria as to why they want to examine cargo, but they are not going to share the reason with importers. The underlying basic principal is that all cargo is considered “guilty” and it is up to the importer to prove its innocence. Maybe, CBP is just going to do a spot check. Other times, they are ensuring that the listed description on the commercial invoice matches the actual cargo. CBP also has the unenviable responsibility to prevent terrorism and drug interdiction, and enforce copyright protection among other things. In order to do all of that, they have to physically examine the cargo.
In my opinion, Exam Type #2 is the REAL exam that importers most need to worry about. The CF28 is actually the point when CBP casts a wide net and commences to pull in all kinds of detailed information about the importation. Requested information may include financial data such as how you paid for the goods; how it was used and marketed; and how it was manufactured – even a request to provide more product samples. Sometimes, the CF28 is just simply question-asking. But other times, it leads directly to a CF29 Notice of Action, the less friendly sibling of CF28. Many times, the CF29 is a harbinger of bad news telling the importer that their duty rate is going to increase.
We encourage importers to consult with their broker or legal counsel before responding to a CF28. Importers may unwittingly open themselves up to further scrutiny if the response is sloppy, or the importer divulges information in a way that piques more curiosity from CBP.
If your company just doesn’t have the money to hire a full Compliance Manager, here are those aforementioned six quick (and legal) tips that can help keep you off the CBP radar:
- CTPAT – As I mentioned in my previous blog, 6 Ways Your Company May Benefit From the CTPAT Program, if CBP is going to inspect your cargo anyway, you might as well get to cut to the front of the line if your cargo gets tagged for an exam.
- Proper Merchandise Descriptions – You would be surprised at the crazy descriptions on cargo documentation. When I first started working in this industry, a client put the words “California Raisins” on the bill of lading. The cargo, though, was actually plush dolls in the shapes of singing raisins. Inevitably, USDA noticed and actually mandated to inspect the container to make sure the contents were not edible raisins. This mistake resulted in a week and a half delay and some hefty exam costs. The same tip goes for descriptions on commercial invoices. A mere SKU number description of “76-Y129 Brown” will cause CBP to ask questions. Some items need a bit more extra detail. If you are unsure, consult first with your broker about necessary details before you put them on a commercial invoice.
- Valuation – Commodity Specialist Teams (CSTs) at CBP compare your prices to your competitors’ prices. Unless you are an incredibly good negotiator, your FOB prices are going to be similar. If they aren’t, CBP is smart enough to know that you might have some kind of “special deal” which could mean that something regarding the price of your goods is not correctly declared. Consult with your broker about Royalties, Assists, Buying Commissions and the like to make sure you are legally declaring the lowest possible value for duty computation. If you don’t, CBP can turn into a popular gossip magazine where “inquiring minds want to know.”
- Country of Origin – Let’s face it. Some countries are just high risk, whether due to a global reputation in terrorism, drugs, or all of the above. I know it is not easy to just switch production lines to another country, but if you import from a high-risk country, there are going to be exams. Try to source your goods from low-profile countries.
- Factory – Many importers use the same factories. More so, most importers know each other and are familiar with each other’s products. Some importers probably even play softball together in the evenings. If one of your buddies has cargo that was targeted for an exam and received a marking notice, odds are you are going to get one as well. I suppose there is no way to avoid this exam since it wasn’t your fault, but awareness of potential delays and planning accordingly can save you a good chunk of time and money.
- Meet with CBP – I know this is going to be difficult for some of you, but I always found it in importers’ best interests to meet the people who have power over the release of their cargo before problems really begin ... and they typically happen no matter how compliant the importer is. Sometimes, that personal professional relationship might be able to prevent exams before they happen. CBP wants to get to know importers as well and get a feel for the ‘tightness’ of their import programs including their concern about compliance. If you are willing to start a relationship with CBP, it is not unheard of for CBP to call and ask you a simple question because now they know whom to ask. On the other hand, they can continue to seek answers by targeting your cargo for exams. In my experience, CBP is mostly pleasant and reasonable, just like most people you meet every day. Remember, however, CBP has a vital law enforcement role, and no matter how nice you are, they can’t overlook that.
I may have missed other tips, but I think this article covers the basics. Remember, you can never eliminate customs exams! Strive to minimize the chance of one and mitigate the resources it takes to respond. In the end, customs compliance may just be the best tip of all. If you would like to learn more about our Smart Compliance Solutions contact us here.
