Writing in the January 10, 2011 Journal of Commerce, Robert Pisani, a well-known international trade lawyer who was formerly Senior Attorney at U.S. Customs Headquarters in Washington, outlined some of the compliance challenges facing U.S. importers in 2011. While many of the challenges described are shared by their counterparts here in Canada, considerable differences exist in terms of the regulatory specifics involved. Here then is a similar prescription for Customs compliance to that provided by Mr. Pisani, but one that’s written from a Canadian perspective.

As rightly noted by Mr. Pisani in his article, the “foundation of Customs compliance hasn’t really changed” — what has though are the various factors now making it a more challenging and complex undertaking than ever before. Aside from the increasingly globalized nature of supply chains in general, foremost amongst these is the comprehensive post 9/11 trade security regime that continues to spawn ever more government regulation affecting all aspects of the logistics and customs process on both sides of the border.

The economic downturn also hasn’t made the job of compliance any easier. In a period of downsizing and belt-tightening for many companies, trade managers have been forced to assume additional responsibilities and tackle new regulatory burdens without necessarily having the corresponding staff or resources needed to deal with them effectively.

All this comes at a time when trade compliance expectations have never been higher; not only from government authorities looking at more efficient and targeted approaches to regulatory enforcement, but from companies themselves who increasingly view compliance as way of realizing cost savings while also minimizing their exposure to potential liability.

Given all these highly stressful “symptoms” in the present trade environment, what is the best means of implementing or managing an effective compliance program?

Import Data

The first step on the road to compliance is getting a complete picture of your current import activity. This can be done quite easily by obtaining data from your customs brokerage service provider(s). Most brokers have the ability to provide detailed reports about your imported goods and many can even tailor this information to your individual specifications. Or, they can just provide you with raw data that can then be imported into any database, spreadsheet, or ERP software. This will not only give you an overview of the scope and value of your imports, but also provide you with the foundation needed to begin your trade compliance analysis.

Internal Audit

Once you have the import activity data, you should conduct an internal review with the objective of identifying compliance issues and action items that may be needed. This should encompass areas such as tariff classification, country-of-origin, and valuation. Depending on the volume of entries involved, your review may consist of a statistical sampling or a detailed examination of all transactions.

Whatever audit method is used, if your review process detects errors and compliance problems, these will need to be flagged for voluntary amendment to correct the specific issues involved. Although the notion of voluntarily paying additional duties may seem like a hard pill to swallow, in the long run, such preemptive action could actually help you avoid incurring far more costly fines that could otherwise by assessed by the CBSA through its Administrative Monetary Penalty System (AMPS) for incidents of non-compliance.

Should the problems discovered be systemic in nature, then a more critical assessment of your current systems and internal procedures could well be warranted to help uncover the specific compliance gaps that will need to be addressed with appropriate software upgrades and other investments to minimize risks in future. You should discuss the available alternatives with your customs broker or a trusted trade adviser as their specialized knowledge in this area could be invaluable in terms of implementing the most appropriate solution.

Trade Compliance Program

If your organization doesn’t presently have a trade compliance program with dedicated resources committed to it (which is highly recommended), you should still have adequate internal controls and standard operating procedures (SOPs) related to your customs and trade activities.  Key SOPs include the following:

a) A Pre-Entry Checklist to ensure all required documentation is provided to Customs (and any other government departments, if applicable). Key amongst the items covered is the invoice description provided by your vendors. Poor descriptions (i.e., vague, inaccurate, incomplete or incorrect) are a major source of tariff classification errors and clearance delays. Vetting them beforehand will help to avoid compliance problems in these areas. Other items include HS classification, origin, value and any preferential duty treatment that may apply (e.g., NAFTA or other free trade agreements).  It is also advisable to establish a process with your customs broker to advise them in advance of new products and/or suppliers coming on stream so this information can be added to their classification database — something that is becoming increasingly important for efficient release processing under the new eManifest system being implemented by the CBSA.

b) A Post-Entry Audit Procedure that monitors the accuracy of Customs entries. Depending on the volume of entries involved, this might entail a periodic review consisting of a representative sampling or the checking of each individual entry. Verification should cover everything from purchase order to proof of payment. Post entry-audits are essential in uncovering discrepancies or non-compliance that may require the filing of voluntary amends.

c) Tariff Classification, Valuation and Country-of-Origin Guidelines establishing the procedures to be followed regarding each of these areas. Following these SOPs should enable you to determine: the most favorable duty rate and tariff treatment; availability of special tariff programs which eliminate, reduce or defer duties; the applicability of import restrictions, quotas or special licensing requirements; whether the merchandise is subject to antidumping duties; the proper dutiable value taking into consideration factors such as whether transfer pricing fairly reflects market value in the case of related-party transactions, the inclusion of intangibles such as royalty payments, and so on.

Other important trade compliance SOPs include training guidelines for individuals both directly and indirectly involved with the import/export process, recordkeeping procedures to ensure the retention of adequate information to support entry, classification, valuation, origin certification, etc.

Preparing for the Road Ahead

The recommendations that have been described here in brief cover only the most basic aspects of implementing a trade compliance program designed to minimize risk within a regulatory environment that itself is in a constant state of flux. Looking forward, importers will be confronting new challenges such as implementation of the final phase of the CBSA’s eManifest program, advanced cargo reporting initiatives of the European Union, several new free trade agreements, sweeping changes to consumer product safety regulations, and a myriad of new regulatory edicts bound to arise from other government departments and federal agencies.

While the specific details of trade compliance may be constantly changing and evolving, the essential principles of risk management and accountability remain the same. Importers that are prepared to invest in getting the fundamentals right should have no problem meeting the new compliance challenges that lay ahead.