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Don’t Overlook Reasonable Care

One common misconception among U.S. importers is that they don’t have to worry about what’s on their commercial invoice and other import documentation. These importers will often neglect to provide their Customs broker with a truly complete product description or accurate country of origin because they don’t think they have to sweat the details. What they may not realize is that these types of requirements fall under the umbrella of what U.S. Customs & Border Protection (CBP) refers to as “reasonable care.” Importers who do not attend to these crucial requirements risk delays in release of their goods, audits, and penalties.

Defining reasonable care

CBP expects all importers to exercise some form of caution (i.e. reasonable care) when dealing with [1]

  • import documentation
  • country of origin verification, marking, and labeling
  • tariff classification, valuation, and duty rates
  • quantity
  • free trade agreements
  • other government agencies
  • recordkeeping

Although this is by no means an exhaustive list, importers must be careful with all details relating to these areas, as well as have written procedures to document their approach. In other words, as an importer, you should be able to prove to Customs that you provided and obtained the right information to meet these regulatory standards.

Is there a right way to manage my reasonable care?

CBP allows you flexibility in how you manage your reasonable care responsibilities. You can manage them yourself, use an expert (a licensed Customs broker, attorney, or accountant), or a combination of the two.

If you decide to use an expert, it is important to choose wisely. CBP expects you to qualify your expert by asking if their firm is a licensed Customs broker or, in the case of an attorney or accountant, if they have specialized knowledge or expertise in CBP matters. When in doubt, avoid taking advice from unregulated or unlicensed “experts,” as it will not serve in your defense during a CBP audit.

Once you’ve qualified your expert, it is crucial to provide him or her with complete and accurate information about the import transaction. Falling short of this requirement will lead CBP to view your company as lacking reasonable care.

What steps can I take?

Prior to import

  • Familiarize yourself with U.S. import requirements by reading informed compliance publications like, What Every Member of the Trade Community Should Know About: Reasonable Care [2].
  • Determine if there are any other government requirements for your imported products, such as an FDA Prior Notice for food products or additional labeling requirements for wearing apparel.
  • Bookmark the link to the online Harmonized Tariff Schedule for quick classification reference [3].
  • Consult with a licensed or certified expert, such as a Customs broker, attorney, or accountant.
  • Search CROSS, CBP’s online ruling database, to see if Customs has previously ruled on a product similar to yours [4]. Use this ruling as a guide for classifying, valuing, and marking your goods.
  • If after consulting with an expert and reviewing CROSS you are still in doubt of your product’s correct classification, origin, value, etc., seek a binding ruling from CBP. The beauty of a binding ruling is that it provides CBP and the importer with a definitive answer on these aspects of the product.
  • Document your processes for classification, origin verification, valuation, marking, etc. and provide employees with step-by-step instructions to achieve compliance. Keep procedures simple and easy to follow and them with your vendor and Customs broker.
  • Create a tariff database and share it with your broker to cut down on entry errors. Periodically review the database and provide your broker with any updates.
  • Issue purchase order instructions to your vendor that match your invoice requirements.

After import

  • Attend trade seminars and read newsletters to stay informed of changing requirements.
  • Review your commercial invoice or proforma invoice to make sure all requirements are met [5].
  • Verify that entries prepared by your broker are correct. If you find an error during a post entry review, correct it and work with your vendor and broker to prevent it from happening again.
  • Establish a recordkeeping program. Verify which documents should be kept, how long they should be retained, and how they should be stored.

Keeping up with your reasonable care responsibilities is not easy but with continued effort you will be able to show CBP that you’ve done your homework.

MGTA’s import audit service can help you to uncover gaps in your import procedures. Click here to learn more about our import audit services. Our import compliance programs can assist you in developing, improving, and enhancing your reasonable care policies and procedures. Click here to learn more about our import compliance programs.

Footnotes

[1] per U.S. Code Title 19, Section 1484(a)(1).
[2] See the list of Informed Compliance Publications, including Reasonable Care (A Checklist for Compliance), on U.S. Customs & Border Protection’s website, www.cbp.gov.
[3] View the Harmonized Tariff Schedule at www.usitc.gov/tata/hts/.
[4] See rulings.cbp.gov.
[5] For a complete list of requirements see 19 CFR 141.86-141.89 and 142.6.

By Jim Trubits, Vice President. Click here to read more about Jim.

©2012 Mohawk Global Trade Advisors

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7 Ways to Harness the Power of Foreign Trade Zones

More and more U.S. companies are using Foreign Trade Zones (FTZ) to better manage their global supply chain costs. Here are seven advantages that showcase FTZ as a competitive alternative to a domestic distribution center.

1. Duty Deferral. Duties are only paid when imported merchandise enters U.S. Customs territory. Goods may be held in an FTZ indefinitely and without duty payment, allowing for improved cash flow.

2. Duty Avoidance. There are no duties on FTZ merchandise that is destroyed, exported, or transferred to another zone. This eliminates the need to manage costly and time consuming duty drawback programs.

3. Duty Inversion. The user may elect to pay the duty rate applicable to the component materials or the finished goods produced from raw materials, depending on which is lower.

4. Inventory Tax Incentives. Companies that hold goods in an FTZ are exempt from inventory taxes. Also, certain tangible personal property is generally exempt from state and local ad valorem taxes.

5. No Duty on Value Added. There are no duties on labor, overhead, or profit to operations performed within an FTZ.

6. Save with One Weekly Entry. Customs allows for weekly entry processing, which benefits importers because they pay a single Merchandise Processing Fee per week, versus paying on a per shipment basis.

7. Enhanced Security. By using an FTZ, the internal controls requirements of the  Sarbanes-Oxley Act (Section 404) are met. Participants in the Customs-Trade Partnership Against Terrorism (C-TPAT) program are eligible for additional Customs benefits.

By taking advantage of Foreign Trade Zones (FTZ), U.S. companies can save on duty, improve their market competitiveness, and reap the rewards of a more secure supply chain.

By Jim Trubits, Vice President. Click here to learn more about Jim.

MGTA can make FTZ a worry-free process for your company by helping you with Foreign Trade Zone application prep, employee training, activation, and compliance reviews. Click here to learn more about our FTZ services.

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Case Study: Better Transportation Management & Customs Compliance

The client is a leading U.S. garment importer with distribution facilities in Oklahoma and California. The company currently imports from over 14 countries.

Client Challenge
Mohawk Global Trade Advisors (MGTA) was introduced to the garment importer as a supply chain consultant and was tasked with uncovering gaps in their supply chain, evaluating their logistics providers, auditing their Customs compliance programs, and identifying cost savings opportunities. At the time, the garment importer worked with several freight forwarders and had a long standing relationship with a Customs broker in Texas.

After a six month on-site evaluation at the importer’s corporate headquarters in New York and their distribution facility in Oklahoma, MGTA presented its findings, identifying several deficient areas in the company’s supply chain. As a result, the importer signed a one year consulting agreement with MGTA.

Our Solutions
The MGTA team presented the importer with solutions for transportation management, Customs compliance, and Foreign Trade Zone implementation.

Transportation Management – Import Ocean Freight
MGTA found that the importer was paying above market for import ocean freight service into Los Angeles and Dallas. In response, MGTA administered an ocean freight Request for Quotation (RFQ). The results of the RFQ suggested that the importer should enter into service agreements directly with ocean carriers. This would provide the importer with fixed pricing and capacity for a twelve month period, as well as additional“free time” at the port or rail yard. The results of the RFQ also suggested that the importer should select two forwarders, based on service coverage and pricing, to manage all bookings and customer service in Asia and the U.S. Once the carriers and forwarders were in place, the importer was able to take advantage of the “spot” ocean freight market to further drive down cost. The RFQ generated an annual savings of over $500,000 on 1,500 forty-foot containers.

MGTA has saved the importer over $3.5 million in import ocean freight, demurrage, and per diem charges. Today, the importer ships over 3,000 forty-foot containers a year, with MGTA managing and negotiating new carrier and forwarder contracts every year. MGTA also reviews and approves all ocean freight invoices before sending them to the importer for payment. This saves the importer approximately $30–50,000 in over-charges every year.

Transportation Management – Ocean Drayage RFQ
MGTA found that the importer had been relying on one main drayage provider without renegotiating rate levels based on the company’s substantial growth. MGTA administered a local drayage RFQ in response, resulting in additional service providers and nearly doubling the driver capacity from 145 to 245. The savings from the RFQ was over $100,000. The drayage project also established a network of transloading and warehousing services on the West Coast for delivery to large customers like Wal-Mart and Target. To this day, MGTA continues to administer an annual drayage RFQ on the importer’s behalf. The total savings to date is $750,000.

Customs Compliance
MGTA found that the importer’s Customs compliance manual and program had not been updated in years. Working with the importer’s in-house broker, MGTA updated the manual that is used today to ensure that best practices are implemented and followed. MGTA currently performs an annual audit of the importer’s Customs compliance program, product classifications, and record keeping. MGTA also introduced the importer to ACE, assisted in establishing an ACE portal account, and helped the company apply for Periodic Monthly Statements. Due to the nature of the importer’s product, there were large outlays for duties and taxes. Periodic Monthly Statements helped to optimize cash flow and administer payments to Customs.

Foreign Trade Zone Implementation
MGTA identified the opportunity to use a Foreign Trade Zone (FTZ) in Oklahoma to defer duty payments, as well as reduce import taxes and Customs clearance fees. MGTA assisted the importer in applying for FTZ operating authority and selecting FTZ inventory management software. The FTZ in Oklahoma has been up and running for the past two years; and the company is now working to expand the program to their California facility. The FTZ saves the importer $250,000 a year.

© 2011 Mohawk Global Trade Advisors

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