U.S. Import Practice Tips to Mitigate Compliance Risk

The shift away from the unipolar and free trade-oriented world of the 1990s and early 2000s to the peer competition-driven managed trade and industrial policies of today has resulted in an increasingly restrictive and protected U.S. import environment.

The significantly stepped-up enforcement activity that characterizes this trend has, in turn, increased compliance risk for U.S. importers. This post will attempt to help U.S. importers mitigate some of that compliance risk through a set of up-to-date import practice tips.

  • Transactional Framework

Importers should always create and operate within a robust transactional framework. This should, at a minimum, include all the core transactional documents that pertain to the importation of goods into the U.S.. Clarify up front with a foreign producer/exporter purchase order elements, commercial invoice requirements, merchandise-specific declarations/certifications, and Incoterms. These documents can also be used to establish or underscore a producer/exporter’s obligation to produce information, and/or an importer’s right to access and review information (for example, a detailed bill of materials). These measures, properly implemented, protect importers and demonstrate reasonable care.

  • Importer-Broker Issues

It is essential that importers be clear-eyed about the role played by brokers (when they choose to retain the services of one). And that they understand the limitations built into the relational dynamic. Barring a failure on the part of a broker to exercise reasonable supervision and control, importers, not brokers, are on the hook for errors/mistakes involving classification, country of origin, value, duty, declarations made on partner government agency documents, etc. This said, importers should carefully review – and understand – the terms of engagement they sign off on. If an importer has questions about what a broker’s services will entail, those concerns should be addressed up front, before a problem arises. Importers should, in this connection, exercise extra care in understanding the operational and communications rights and responsibilities that come into play if/when a (non-broker) forwarder is positioned between the importer and a broker. Importers should always, when it comes to filing, clearing, and liquidating entries in this situation, view the broker as the primary authority.

  • Importer Compliance Program

Importers should develop, implement, and maintain an internal compliance program that is keyed to the size and circumstances of its business. Fundamental elements of such a program can include securing management buy-in, designating a chief trade compliance officer (CTCO), having written import policies and procedures, providing training to relevant personnel, performing periodic audits, creating a classification database, opening an ACE account for the purpose of monitoring entries, using global trade management (GTM) solutions to automate and enhance daily operations, establishing an error reporting protocol, and conducting in-person verification visits to the overseas facilities of producers/exporters. An importer can anticipate inquiries about all of the above if/when U.S. Customs and Border Protection (CBP) has questions.

  • Supply Chain Security

Persistent threats of a biological, terroristic, financial, or electronic (i.e., cyber) nature have led CBP to create, following a public-private partnership model, programs designed to enhance supply chain security. While not mandatory, these programs offer importers an ever-expanding set of benefits. Importers interested in reducing the amount of time and money lost to CBP inspections, processing delays, and audits should take a careful look at the CTPAT and CTPAT Trade Compliance programs, at the same time they aspire to a zero-trust security framework.

  • Centers of Excellence and Expertise (CEEs)

Consistent with the general trend toward putting its relationship with the trade on a national level “account” footing, CBP has, over the past 10 years, established a series of Centers of Excellence and Expertise (CEEs). CBP’s principal goal in this regard has been to increase consistency and predictability by transitioning operational trade functions away from the ports and out to its network of geographically dispersed and merchandise/commodity-specialized Centers. Every importer, whether they realize it or not, is associated with not just a Center but also a specific supervisory specialist at that Center. These specialists can be an invaluable source of guidance for importers navigating complex or grey area issues, if and when the need arises. Importers should, if they haven’t already, be sure to identify and connect with the Center and specialist corresponding to their account. Why make the process of interacting with CBP more difficult than it needs to be?

  • Core Reasonable Care

The exercise of “reasonable care” is at the heart of U.S. import compliance. Importers should, in this connection, ensure that they have, either independently or through the services of a trade expert, identified the proper Harmonized Tariff Schedule of the United States Code (HTSUS) classification, country of origin (and corresponding marking), and value associated with imported merchandise. In a related vein, importers should ensure that they have properly preserved the records that substantiate their transactional determinations. This is bedrock. And it can, for the detailed/complex methods, rules, and other considerations that bear on classification, origin, marking, and value analyses, be tricky. Get this right, up front, and be prepared to defend conclusions. If there are doubts about any of the foregoing, consider submitting a ruling request. But only where there is a business willingness and ability to live with an outcome contrary to that hoped for/expected.

  • IPR

Intellectual property rights (IPR) have been – and continue to be – the focus of a lot of U.S. Customs and Border Protection (CBP) scrutiny and enforcement action. From a defensive perspective, importers can use CBP’s Intellectual Property Rights Recordation Search (IPRS) to verify that inbound merchandise does not violate the IPR of third parties (or, if it does, flag the issue in a way that opens up the possibility of securing the right holder’s prior written authorization). Viewed alternatively from an offensive perspective, importers can use CBP’s Intellectual Property Rights Recordation System (IPRR) to record their proprietary IPR. This cost-effective action has the effect of enabling CBP to police an importer’s brand at all U.S. ports of entry. In either case, importers should endeavor to connect with CBP field operations personnel at the ports for the purpose of providing personalized guidance on (1) how and why imported merchandise does not infringe or dilute the IPR of a third party or (2) the key/defining IPR attributes of merchandise that is entitled to protection through the recordation process.

  • Unfair Trade

With the total volume of merchandise subject to Antidumping and Countervailing Duties (AD/CVD) up 37% over the 2017-2021 timeframe, it is safe to say that the Department of Commerce (DOC), International Trade Commission (ITC), and CBP have been busy. These agencies have, at the same time, been digging down on schemes put into place with an eye to evading or circumventing U.S. AD/CVD orders. The trade environment is, on these counts, characterized by an elevated level of enforcement risk. To stay compliant, importers should, in advance of importing, ascertain whether the merchandise they seek to bring in is subject to an AD/CVD order or has otherwise been the focus of a CBP Enforce and Protect Act (EAPA) investigation or DOC circumvention inquiry. Any threshold doubts as to whether merchandise comes within the scope of an AD/CVD order can be definitively clarified through the submission of a scope ruling request.

  • Forced Labor

While forced labor prohibitions have been on the books for some time, the consumptive demand clause hindered their effective enforcement. The repeal of the consumptive demand clause in 2016 injected new life into the forced labor laws and regulations of the U.S. Initially, forced labor enforcement ramped up under the existing regulations (19 CFR 12.42-45). To date, importers need to keep an eye on 54 Withhold Release Orders (WROs) and 9 Findings across 11 countries (including China). As of June 2022, however, importers must, as a matter of front-end due diligence, screen merchandise for compliance with the terms of the Uyghur Forced Labor Protection Act (UFLPA). For reasons laid out here, that is a tall order. Though still too early in the life of the UFLPA to know how aggressively CBP will enforce the Act’s provisions, importers who hope to stand a chance of successfully challenging a UFLPA detention will need to be able trace out and document the upstream nodes in the supply chains relied upon by their overseas manufacturers/suppliers. This kind of visibility will, ultimately, require an above-average level of foreign cooperation and/or leverage. Importers who find themselves unable to secure the documentation required to establish either out of scope status or an exception will be faced with the prospect of having to develop alternative supply chains.

  • PGA Requirements

CBP is fond of describing itself as the tip of a spear. The remainder of this spear is comprised of approximately 50 other partner government agencies (PGAs), all of which have their own requirements relating to the importation of merchandise that comes within their administrative jurisdiction. These regulations and requirements may, for admissibility purposes, control or be enforced in tandem with CBP’s regulations. That said, importers must ensure, on a pre-importation basis, that they understand what, if any, PGA regulations/requirements apply to their merchandise and take the corresponding compliance measures. Importers who fail in this regard leave themselves open to the risk of having their merchandise detained, excluded, or seized/forfeited, possibly in conjunction with the issuance of a penalty or judicial referral.

  • Special Tariffs

The majority of the Trump administration’s Section 301 tariffs are, for the moment, alive and well (and without the benefit of an exclusion). So, too, are many of the Trump administration’s Section 232 tariffs on steel and aluminum. This situation continues to be an enormous source of uncertainty for the trade. While there are a number of considerations that suggest targeted relief on the current special tariffs is, to one degree or another, forthcoming, the Biden administration is simultaneously exploring the possibility of opening its own Section 301 investigation focused on Chinese subsidies. The net result? More uncertainty. And the key takeaway for importers? Stay abreast of what is happening at the United States Court of International Trade (USCIT), in Congress, at the United States Trade Representative’s office, at the ITC, and at the Department of the Treasury, particularly as it relates to the possible refund of duties and the availability of Section 301 exclusions/Section 232 Generally Approved Exclusions (GAEs). Importers who are unable or unwilling to continue dealing with Section 301 duties might, as has been and will be suggested at other points in this series of practice tips, search out and develop alternative suppliers.

  • New Sanctions

Russia’s unprovoked invasion of Ukraine has resulted in an evolving series of export and import sanctions. On the import side of the ledger, these measures have taken the form of prohibitions and elevated duties (thanks in part to the revocation of Russia’s Permanent Normal Trade Relations status). Now, in addition to having to screen for AD/CVD orders, special tariffs, quantitative restraints, etc., compliance-minded importers need to be vigilant about neither importing Russian origin goods nor making improper payments to sanctioned parties. While it is, in many cases, easy to identify Russian-origin merchandise, there are circumstances, as U.S. importers have discovered with oil and seafood, in which the task is not so straightforward. Having reliable extraction/production or catch/processing records will, in such cases, be crucial for the purpose of accurately identifying the country of origin of the merchandise and the corresponding duty exposure.

  • Alternative Sourcing Strategies

Several of the foregoing tips and considerations conclude by flagging the possibility of sourcing merchandise in a country other than China. This aspect of the overarching ‘decoupling’ trend has become more common in recent years, particularly on the part of importers who have grown tired of being caught in the middle of the increasingly aggressive competitive dynamic playing out between the U.S. and China. While China alternatives abound (Vietnam, Malaysia, and Mexico come immediately to mind), importers should recognize that the development of alternative manufacturing and supply sources is not as easy as simply picking up and moving. For one, the widget now being produced in Vietnam may not, for U.S. Customs purposes, qualify as being of Vietnamese origin if any pertinent Chinese origin parts and components are not substantially transformed into an article of a new and different character. Second, importers should recognize that an alternative production country may not have the infrastructure, human capital, material inputs, and/or know how needed to produce the widgets previously manufactured in China. In sum, this can be, for some, an appealing option – but importers need to think before they break long-established ties, and look before they leap.

  • Supply Chain Disruptions

The combination of a pandemic, military conflict, and global warming-induced power outages has, as U.S. consumers and importers are well aware, resulted in substantial supply chain disruptions. While the contributory factors associated with this outcome persist, importers have been afforded some relief from abusive carrier practices under the recently enacted Ocean Shipping Reform Act (OSRA). Additional disruption relief could become available if/when the International Longshore and Warehouse Union (ILWU) dockworkers attached to 29 West Coast ports conclude a labor deal with the Pacific Maritime Association (PMA). The successful resolution of this ongoing negotiation would, to the extent it eliminated the possibility of work stoppage-driven reroutings, help stabilize U.S. supply chain operations.

  • Emerging Trade Frameworks

The U.S. appears to be moving away from its long-held practice of creating import-export opportunities through the negotiation and implementation of Free Trade Agreements (FTAs) geared toward the removal of tariff and non-tariff barriers. This includes, as recent experience with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) indicates, some FTAs the U.S. played an instrumental role in bringing to life. Instead, in what can be viewed as a more restrictive, national interest-motivated approach to trade, the U.S. has taken up the practice of negotiating “framework agreements” with like-minded and strategically situated allies focused on a narrowly defined set of “pillars”. A recent example of a U.S.-proposed framework agreement is the Indo-Pacific Economic Framework (IPEF). As this practice unfolds, importers should ensure that they understand what’s in the framework agreements, how this differs – both in scope and substance – from the earlier FTAs that remain in place, and, crucially, how they can benefit from this new approach.

  • U.S. Government Communications

There are many forms of trade-related U.S. government communications – CF 28s, CF 29s, CF 4647s, ICLs, Notices, Warnings, etc. Importers who receive such communications should take them seriously. This is especially the case in which the communication either requires a response within a defined number of days (some of which may already have lapsed if the communication was sent by mail) or makes an importer aware of a previously undetected error/mistake in a way that does not shut off the possibility of filing a prior disclosure. There is no reason to miss out on having the opportunity to shape the U.S. government’s understanding of an issue, allay the U.S. government’s concerns, or head off an unwanted outcome, where this is possible, on account of an importer’s failure to submit a timely response or otherwise engage. While importers are free to respond to U.S. government communications without the assistance of expert counsel, responses that clearly and methodically lay out the facts, circumstances, laws, regulations, directives, determinations, rulings, court decisions, and other persuasive secondary authority that may inform a matter have a greater chance of succeeding than those that don’t. Importers who are, through the response and subsequent engagement process, unable to achieve their desired outcome should, where the regulations so provide, consider taking a second bite at the apple pursuant to the filing of a protest.

  • Enforcement

The number of enforcement actions undertaken by CBP and PGAs is on the rise. This has been the case for the last couple of years. While a well-thought out, well-executed compliance regime can go a long way to insulating importers against enforcement exposure, mistakes do happen. Sometimes, too, circumstances beyond the control of an importer can come into play. Under either scenario, there are frequently considerations or factors that open the door to mitigation or remission. This said, it is usually to an importer’s advantage to not simply accept the U.S. government’s assessment of a situation but, rather, challenge the enforcement action administratively and, if necessary/appropriate, judicially.

The Import Compliance Mindset

The tips outlined in this post provide insight into the broad range of issues that today come within the scope of import compliance. Speak to any customs and trade practitioner who was active in the practice space 10 or 20 years ago and they will tell you that the import compliance environment has become more complex. The issues fleshed out here are, from a risk perspective, exacerbated by (1) the relatively recent trend to criminalize import-related violations that had previously been resolved through administrative channels and (2) the U.S. Court of International Trade’s willingness to take a more expansive view of the personal liability that can attach to importers. Now, more than ever, importers need to get into the mindset of taking import compliance seriously – or, alternatively, be prepared to suffer the consequences that flow from their failure to exercise reasonable care. I’d love to hear from you in the comments below (or get in touch directly) about any of the above issues, or with specific questions you may have.