6. Review and Evaluate Incoterms
Incoterms are a global system of standards defining which party is responsible for the cargo and related cargo risk at each stage of an international transaction. This includes who is responsible and liable for the cargo, who is paying the freight, who owns the goods at each state, and the responsible party at time of any damage and/or loss. No matter which country you are importing from or exporting to, it is an international standard that should be used for any transaction.
It is critical to make sure that the Incoterms are clear to both parties particularly considering that it is used to calculate value, for Customs purposes, and the assessment of duties and taxes. We have seen a lot of companies run into issues where they did not think they were responsible for duties and taxes. Especially during this time, with additional section 301 tariffs and other trade barriers going on, duties can be a huge financial burden especially if they are unexpected.
A lot of times we see importers using out-of-date Incoterms as well. Just as tariff classifications and trade programs are updated, so are Incoterms - ensure that you are using the most recent version of Incoterms. INCOTERMS can be complicated and the repercussions for not taking the time to ensure that the correct terms are understood and used can cause complications and a heavy financial burden.
7. Maintain sound record keeping practices - what documents to keep and for how long?
This is a big one, and one more of the more hidden responsibilities of being an importer of record. It is not just what an importer does prior to and during the Customs transaction, but also everything required after the entry has been filed and release has been obtained.
US Customs can request and audit documentation up to five years from the date of entry, and therefore, the retention requirement for documentation is five years. In some cases, the requirement can be for longer. Such as entries subject to certain trade barriers, anti-dumping, etc. - those documents must be kept until the cases are closed. There are stiff penalties if an importer cannot provide or reproduce those documents when requested.
At minimum, an importer’s record retention should include the following: the full customs entry packet, including the commercial invoice, packing list, bill of lading, any related certificates. Trade agreements often require additional certifications, including the verification of country of origin.
8. Internal audits and working with third parties for mock audits.
US Customs has self-audit expectations and requirements for importers. We always recommend that importers engage in regular internal audits, checking over their documents, past shipments, and processes. Just because the goods were delivered does not mean that everything on that entry was 100% correct or accurate.
Audits should be established on a fixed schedule – monthly, quarterly, or annually. The audit can be for a multitude of things, including what was paid for the goods versus what was quoted, what the goods description was versus the commercial invoice, and tariff classification. By conducting a review, the importer is engaging in reasonable care, and performing due diligence. It’s important to not just simply save documents somewhere, but actively review them and engage with third party companies to ensure the highest level of compliance is maintained. Many companies choose to engage with their Customs Broker, trade attorney or other consultant who can look at their entries, documentation and record keeping practices to provide recommendations on ways to improve processes or make corrections where mistakes have been identified.
A process often used is conducting reviews where a group of entries is selected to look at full entry packets and perform an "audit" in the same manner as if it were conducted by US Customs. The purpose of mock audits is to give the importer feedback and recommendations through the lens of what CBP would look at if an actual Customs Audit had occurred.
What to do next?
Ultimately, US Customs expects that “the importer of record is responsible for using reasonable care to enter, classify and value imported merchandise, and provide any other information necessary to enable Customs to properly assess duties, collect accurate statistics and determine whether any other applicable legal requirement is met”. In other words, an importer should understand their Customs obligations and adhere to the regulations. Though importers are not required to have a custom broker's license, they are still required to review their documents, processes and understand what they are looking at, to do internal audits, and to know their products.
It’s not too late to demonstrate reasonable care - review these recommendations, get help from experts when and where needed and most importantly, get started now! If you have questions on any of these 8 points or require some additional help concerning US Customs and compliance, please contact our expert team at compliance@laufer.com.
