Eight customs trends to watch.
A customs-compliance expert explains how these important developments could change the way you do business.
It may be summer, but there's very little time for rest and relaxation if you're responsible for overseeing your company's import and export activities. Upcoming changes in legislation and in penalty enforcement by U.S. Customs and Border Protection (CBP) mean that importers and exporters will need to maintain a different sort of "cool" in the summertime heat.
Revisions to the Harmonized Tariff schedule, cutbacks in favorable duty rates under certain trade agreements, and similar changes may lead to higher costs. But if you stay on top of these developments, you'll be able to keep your international supply chain operating smoothly during times of transition. To help you do that, we've provided an overview of eight customs-related issues that importers and exporters should know about. Depending on your company's business needs, you may want to dig deeper into the details of the following topics:
1. Harmonized Tariff Schedule (HTS) Revisions: January 2007 is the anticipated time frame for changes to the HTS, the internationally accepted, numerical system for identifying products and materials. Some HTS numbers may be altered by several digits, making current classifications obsolete. These changes will affect many products, including machinery and parts classified in HTS chapters 84, 85, and 90. Importers and exporters need to prepare by making sure they understand the changes and by providing updated information to their customs brokers and freight forwarders in order to ensure proper coding of their products and avoid potential customs-clearance delays.
These changes come at a time when CBP is reminding companies of their obligation to properly report HTS numbers. In recent comments, customs authorities compared enforcement penalties to parking tickets: Companies see the fines as a cost of doing business, but the penalties aren't large enough to cause them to alter their business practices and adopt more comprehensive programs that focus on compliance and include security best practices.
Customs authorities have provided enough advance warning that logistics and import/export departments should be able to work together to ensure that accurate, up-to-date information is in place before the January deadline.
2. C-TPAT application update requirement: CBP's Customs-Trade Partnership Against Terrorism (C-TPAT) continues to evolve with the development of the C-TPAT Security Link Portal, a Web-based program for updating C-TPAT applications. All new applications must be submitted electronically through the portal, and current participants must update their profiles by October 1, 2006. Failure to do so may result in participants being dropped from the cargo-security program.
When current participants update their information, they will be required to break down their original application data into separate areas of cargo security, including access security, physical security, education, and training. They also will find some other format changes for other C-TPAT requirements.
Some companies have had trouble updating their information because of difficulty in accessing the system, and because the Web portal has been unavailable during certain periods. To avoid being dropped from the program, companies would be well advised to update their profiles well in advance of the October 1 deadline.
3. Security best practices: The new electronic-update requirement provides an excellent opportunity to assess your company's C-TPAT program. With C-TPAT validations in full swing and CBP now having the ability to review participants' applications and security information via a Web-based format, it will be easier for the agency to confirm which companies are not meeting minimum C-TPAT standards. This might even result in companies being judged based on electronic scoring of their security profiles.
CBP's newly released list of security best practices, posted on the agency's website, should be a useful guide for developing and maintaining an effective cargo-security program. Companies may want to arrange for an external party to review their security processes and policies, with the aim of providing them with a gap analysis of their security programs. In either case, updating the C-TPAT security profile on an annual basis should be part of every company's overall program.
4. New technology standards: C-TPAT's purpose is to ensure the integrity of cargo from the point of origin to the final destination in the United States. CBP, therefore, is promoting the use of high-security seals that meet or exceed the International Organization for Standardization (ISO) ISO PAS 17712 standard as a means of preventing terrorist attacks. But these high-tech seals can help importers and exporters reduce other types of risk.
The International Cargo Security Council estimates that cargo theft is the greatest security risk a company faces; the group attributes losses of $18 billion per year to the U.S. economy due to theft. Technological advances in container seals can help shippers fend off some of those losses.
The International Container Security Organization (ICSO) has emerged as a key group in developing container-security standards and new technologies. It joins the ISO in promoting standards for the secure movement of product around the globe. As each group introduces new ideas and structures for achieving security goals, different standards may apply to companies that have divisions or subsidiaries in multiple countries. Keeping an eye on and following the ICSO's and ISO's container-security draft recommendations may prove to be a practical and beneficial move for companies that have multinational operations.
5. U.S. preference programs: The end of the year usually is a time for celebration. This year may be different: December 31 may mark the expiration of the Generalized System of Preferences (GSP) and the Andean Trade Promotion and Drug Eradication Act (ATPDEA). These programs allow duty-free entry of products from 144 beneficiary countries and territories.
While it is possible that these treaties will be renewed in 2007, it's probable that some of the countries that are eligible for these benefits, including Brazil and India, will be removed from the lists. Should this occur, United States-based corporations that are importing from those locations may end up paying higher duty rates on their imports. Importers need to follow the progress of the negotiations because changes may force them to seek new suppliers in countries with trade programs that are similar but are not in jeopardy.
Meanwhile, the DR-CAFTA trade agreement has expanded to include Guatemala, which joins El Salvador, Nicaragua, and Honduras in this trade-preference program. This relatively new program allows qualifying merchandise from those countries to enter the United States duty-free. Companies wishing to verify if their merchandise is eligible may seek guidance from trade consultants or ask their customs brokers for additional information.
6. Export rules enforcement: The U.S. Department of Commerce's Bureau of Industry and Security (BIS) continues to enforce penalties against exporters for violations. Recent enforcement actions have run the gamut, from assessing monetary penalties to denying certain companies the authority to export. Verifying that companies have action plans for creating and maintaining strong export management systems is a must in this environment of increasing enforcement.
The federal government's decision to share U.S. export-manifest data with foreign governments has prompted more targeted enforcement actions in the areas of value and classification. Classification is of special concern, as governments classify imports for duty purposes in accordance with the Harmonized System. This provides incentives for some companies to misclassify their products, especially when they are shipping to their own locations overseas. Greater scrutiny in this area will limit liability for non-compliance.
7. Anti-boycott guidelines: BIS has proposed changes in guidelines that allow exporters to voluntarily disclose violations of anti-boycott rules. Anti-boycott rules prohibit U.S. entities from taking part in or knowingly agreeing to certain actions with the intent to comply with, further, or support an unsanctioned foreign boycott. One example of such a boycott is the prohibition by some Middle Eastern countries against trade with Israel.
Violations of the U.S. anti-boycott law often occur--and are often overlooked--in language that is included in shipping documents, such as letters of credit. Assigning an internal staff member to checking all documents prior to exporting will reduce the likelihood of non-compliance.
The proposed changes in the anti-boycott rules outline a revised process for disclosing errors in a timely fashion. Volunteering such information will greatly reduce exporters' risk of penalties for non-compliance.
8. Advance Trade Data Initiative (ATDI) and Automated Commercial Environment (ACE): Supply chain security and trade-compliance data is used by CBP to target and screen risky shipments. This data is collected via electronic data-filing systems, including the Automated Manifest System and the Automated Broker Interface, with detailed information taken from purchase orders, bills of lading, and advance shipping notifications and related documents.
Customs is moving forward with its Advance Trade Data Initiative (ATDI), which will allow the gathering and sharing of information across multiple U.S. government agencies, and potentially with foreign governments, all in the name of addressing security concerns. Having access to the same information that CBP reviews is an effective strategy for staying ahead of potential compliance issues, both here and abroad.
To access that data, companies may take advantage of several programs. The most advanced data is available through the Automated Commercial Environment (ACE) portal. This useful information system includes data that CBP and related federal agencies use to evaluate regulatory compliance. Through the ACE portal, importers also can create reports that allow them to review patterns of sourcing, tariff-code use, value, and other entry and clearance information.
Companies that prefer the written word can obtain a report via the Freedom of Information Act (FOIA). They can send a written request, which must include their company's Internal Revenue System (IRS) identification number. Requests will be handled within 30 to 45 days.
Using the ACE system is preferable, however, because it allows users to access information on a regular basis. Once a company has been approved to participate in the program, it is not necessary to reapply, as is required to obtain an FOIA report.
With so many changes in U.S. trade rules anticipated over the next few months, staying on top of revisions to customs regulations and trade-program developments is the best way to reduce the risk of fines and penalties for non-compliance.
Keeping your team up-to-date on these issues, as well as forming a plan of action to optimize internal communication and follow through on policies, will help importers and exporters enjoy the rest of the summer. They'll be secure in the knowledge that they've done the right things when it comes to regulatory compliance.
Suzanne Richer is president of Customs & Trade Solutions Inc., a consulting firm specializing in international trade and cargo security.