United States: U.S. Customs And The New Trump Administration: Your Top Ten Questions Answered

INTRODUCTION

During the campaign, U.S. Customs & Border Protection (CBP) was mostly mentioned by President Trump in the context of illegal immigration. Controlling the flow of people, however, is only one of the jobs of CBP, which is part of the Department of Homeland Security. CBP also regulates what goods come into the United States, while ensuring that the goods pay the appropriate tariff (basically, a form of tax paid as a percentage of the value of the goods entered). As both the gatekeeper to the United States as well as the second-largest source of U.S. government revenue, the agency is a key regulator for many importers.

Many of President Trump's campaign proposals, while not explicitly directed at CBP, would either impact how it operates or would require implementation by the agency. Further, CBP continues to juggle its dual roles as gatekeeper to the United States with its long-standing role as a revenue collection agency. CBP also is tasked under new legislation with implementing the largest change in its method of operation in two decades, including a move from the port-centric model that has governed its operations to a more industry-focused model centered on Centers of Excellence and Expertise. Adapting to a new political agenda will require agency action when CBP already has its regulatory hands full.

To help navigate this uncertain future, this client alert presents the "Top Ten" questions that every company that imports goods into the United States should be thinking about. This client alert is part of a series of "Top Ten" articles on the future of key international trade and regulatory issues expected to change under the Trump administration. Previously issued client alerts discuss the future of NAFTA1and international trade litigation (including antidumping and countervailing duty actions) under the Trump administration,2as well as the top ten questions regarding the future of the CFIUS review process ( available here). Future client alerts will deal comprehensively with all international trade and regulatory areas where significant change could occur under the new administration.

THE TOP TEN CBP QUESTIONS ANSWERED (OR, WILL THE CUSTOMS CHANGE WITH THE TIMES?)

1. "So what are the roles played by Customs?"

As the primary gatekeeper into the United States, Customs has a great many roles, including:

  • Regulating who enters the United States
  • Interdicting the flow of illegal goods into the United States
  • Collecting tariffs
  • Regulating exports
  • Collecting statistical data regarding imports
  • Enforcing directives of other agencies that impact the transit of goods into and out of the United States

For U.S. importers, CBP regulates each product entering the United States. Ever since passage of the Customs Modernization Act in 1993, CBP has operated on the twin principles of "informed compliance" and "shared responsibility," thereby placing primary responsibility on the importer of record to make entries correctly, but as informed by Customs outreach and educational efforts. Failure to import goods properly can result in seized entries, lost import privileges, and civil and criminal penalties.

2. "What has President Trump promised?"

Although President Trump did not focus on CBP explicitly, many of his international trade and immigration proposals run straight through CBP. These proposals include:

  • Changes to U.S. immigration laws and an increased focus on border security (CBP controls entry of persons into the United States).
  • The revision or elimination of NAFTA (the terms under which NAFTA-country imports enter the United States are administered by CBP).
  • Any crackdown on imports from Mexico and China in their roles as two of the three largest trading partners of the United States (tariff collection and how/whether entry occurs are controlled by CBP).
  • The implementation of the expected increase in antidumping, countervailing duty, and safeguard actions in the new administration (although other agencies determine the duty levels, collection is managed by CBP).

Addressing President Trump's frequent criticism of China as stealing U.S. intellectual property to advance its manufacturing interests would also require substantial efforts by CBP to block infringing goods from entry into the United States. Thus, the election of President Trump likely will have a major impact on how the gatekeeper to the territorial United States operates, impacting every company that imports goods.

3. "Isn't Customs law pretty static? Have there been any recent changes to Customs law?"

Congress enacted the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) (signed into law on February 24, 2016), which represents the largest change in Customs rules since the Customs Mod Act in 1993.3 Among other changes, TFTEA improves intellectual property rights protection rules and establishes a new Intellectual Property Rights Coordination Center to consolidate oversight of IP-related Customs issues and to coordinate IP investigations to identify producers, smugglers, or distributors of infringing merchandise; expands substitution drawback of duties, while increasing the time periods for claiming drawback; and mandates increased cooperation among agencies and consultation with Congress on the progress made by the agency in implementing the law and improving CBP transparency, accountability, and coordination in enforcement efforts. CBP has published interim final regulations implementing a new structure that contains Centers of Excellence and Expertise, which moves certain responsibilities from port directors to a more industry-specific structure as a means of harmonizing treatment of imports at different ports.4

TFTEA also includes the Enforce Act and Protect Act within Title IV, Section 421 of the TFTEA. The Enforce Act and Protect Act establishes a formal process for CBP to investigate allegations of evasion of anti-dumping and countervailing duty (AD/CVD) orders. As developed in detail below, these provisions offer an opportunity for U.S. companies to combat evasion of AD/CVD orders, while creating risks of investigation and penalties for importers of record.

4. "What is the likely trend in penalties under the new administration? Is this another area where fines are expected to increase?"

As will be discussed in Foley's forthcoming client alert regarding anticipated white collar developments in the new administration, penalties have sharply risen for many regulatory regimes. This is also true with regard to CBP penalties, which (while primarily civil) have more than doubled over the last three years (approaching $1 billion annually). It is our expectation that this increase will continue.

Further, the DOJ increasingly has brought actions seeking criminal penalties for Customs matters. The DOJ has done so both by using statutory provisions related to Customs matters (entering goods into the United States via fraud, gross negligence or negligence,5entry of goods that are falsely classified,6and entry of goods by means of false statements)7and through non-Customs provisions as well (the use of federal provisions regarding the obstruction of justice,8the federal conspiracy statute,9money laundering,10 smuggling,11 and aiding and abetting).12 Further, as explored in detail below, the U.S. government increasingly has been relying on the False Claims Act (FCA) to address shortfalls in duty collections.13 The use of these non-Customs provisions is notable for supporting higher criminal penalties. For example, while each count of falsely classifying goods under 18 U.S.C. § 541 is punishable by up to two years in prison, violations of the smuggling provisions in 18 U.S.C. § 545, obstructions of justice pursuant to 18 U.S.C. § 1519, and money laundering pursuant to 18 U.S.C. § 1956 can be punished by up to twenty years in prison.

The net result is both increasingly broad tools to combat willful Customs violations and higher potential penalties. Notably, the U.S. government has become willing to pursue liability for individuals as well. It is our expectation that the increasing use of criminal penalties and hefty civil penalties, including for individuals, will continue under the new administration.

5. "I heard a lot about imports from Mexico and China during the election. Are there likely to be changes at Customs with regard to these countries?"

The potential changes regarding Mexican and Chinese imports are so great that we have devoted entire client alerts to potential changes in NAFTA14and to the likely explosion in AD/CVD and safeguard trade remedies.15 Further information regarding these topics are just a mouse click away.

In addition to these developments, we expect that CBP will also take the following changes that impact goods traded with these countries:

  • Increasing border security, including potential changes to the C-TPAT (trusted importer) program (primarily impacting Mexico, but potentially imports from other countries as well).
  • Potentially imposing some form of a border tax as a means of discouraging imports that compete with U.S. manufacturing and to take away any advantage offered to non-U.S. companies that allow the rebate of value-added taxes for exports.
  • Increasing vigilance with regard to intellectual property, such as through the enforcement of an expected increase in section 337 actions.
  • Increasing the rigor of the enforcement of intellectual property infringement, including through the measures described below.
  • Increasing the enforcement of antidumping and countervailing duty orders, as detailed below.
  • Increasing the enforcement of prohibitions on the importation of goods produced using forced (slave) labor.
  • Increasing the scrutiny given to claims that goods meet NAFTA regional content requirements and are originating goods entitled to diminished NAFTA duty rates.

6. "I believe I have been hurt by unfairly traded imports. Will CBP under the new administration have the tools to help me with these concerns?"

The ability to file antidumping, countervailing duty, safeguard, and other trade remedy actions to address imports perceived to be unfairly traded is addressed in a previously issued Foley client alert.16 These remedies, while powerful, are not the end of the story regarding how to fight unfair imports. Two other remedies, both available at CBP, also merit special discussion.

Fighting evasion of AD/CVD orders. CBP always has possessed the ability to investigate the potential evasion of antidumping and countervailing duty orders. Yet the system clearly was not working: a General Accounting Office study titled "Antidumping and Countervailing Duties: CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk" found that between 2001 and 2014 CBP failed to collect $2.3 billion in AD/CVD duties.17

Further, the perception has long existed that certain importers (often from China, but from other countries as well) are gaming the system by misdeclaring the country of origin of goods, transshipping the goods to hide the country of origin, misclassifying goods as non-subject merchandise when it actually fell under the scope of an order, and other tactics designed to avoid paying antidumping and countervailing duties. Further, the process of CBP's investigation often was viewed as being opaque, giving no insight to interested parties regarding the conduct or outcome of any investigation. With CBP not being subject to any deadlines, and with its results not being subject to judicial review, companies believing they were being victimized by the circumvention of antidumping and countervailing duty orders pressed Congress for change.

The result was the enactment of the TFTEA and the issuance of regulations establishing a formal process for investigations into possible AD/CVD evasion. Interim regulations (effective as of August 22, 2016, but still subject to change in the final regulations) now allow private parties to make AD/CVD evasion allegations and participate in CBP's investigation, which now must be completed on a set deadline. Under the new procedures, CBP can investigate:

  • Transshipping merchandise through third countries for purposes of changing the country of origin, even where the merchandise was not substantially transformed in the third country.
  • Falsely or incorrectly reporting shipping and entry documentation or engaging in false sales to underpay duties.
  • Falsely labeling or reporting the merchandise's physical characteristics, or misclassifying it as non-subject merchandise.18

CBP must determine whether to initiate an investigation within 15 business days of receiving an allegation that entries, made within one year of the allegation, have been evading antidumping or countervailing duties. Suspension of liquidation of entries can occur within 90 days of initiation, if CBP determines there is a reasonable suspicion of evasion. The full investigation occurs over 300 days (360 for complicated cases) and includes the right of parties on both sides of the issue to provide factual information, rebut information put on the record, and submit written briefing.

Where evasion is found, CBP can take action to remedy the evasion, including by:

  • Identifying the applicable duty assessment rate or cash deposit rate.
  • Extending the period for liquidating the unliquidated entries of covered merchandise that entered before the initiation of the investigation.
  • Requiring importers of covered merchandise to post enhanced cash deposits and assess duties on the covered merchandise.
  • Taking such additional enforcement measures as CBP deems appropriate.

CBP can refer the matter to U.S. Immigration and Customs Enforcement (ICE) for possible civil or criminal investigation.

If an interested party disagrees with CBP's determination, the party may request an internal review by the CBP commissioner, followed by a potential appeal to the U.S. Court of International Trade (CIT), which will determine whether CBP followed the proper procedures, whether its actions are consistent with the statutory and regulatory procedures, and whether its determination was arbitrary, capricious, or an abuse of discretion. CBP has stated, however, that judicial review is unavailable for any decision to not initiate an investigation — a position that eventually will be challenged in court.

While these new procedures offer enhanced protections for companies that believe they are being victimized by AD/CVD evasion, they also could prove problematic for importers, who could be accused of duty evasion. Some of the steps that importers can take to minimize the risk include:

  • Requesting that foreign suppliers act as importers of record.
  • Putting in place contractual provisions regarding the responsibility for paying any duties.
  • Carefully evaluating the classification of goods imported, not just against the presumed HTS classification, but also against the physical descriptions of potentially applicable subject merchandise covered by antidumping and countervailing duty orders.
  • Verifying that import records are accurate.
  • Keeping all appropriate import documentation, including any information relating to the physical attributes of all entries.

Importers should also promptly respond to any CBP Form 29 Notice of Action regarding an increase in duties owed, as the underpayment of duties can be quite substantial when antidumping and countervailing duty tariffs are involved.

Intellectual property protections. Another area where CBP can be used to fight unfairly traded imports is with regard to trademarks and copyrights. Many U.S. companies are unaware that it is possible to register these IP protections with CBP at a low cost, which covers a twenty-year term. Registration requires that the brand owner provide information regarding how authorized shipments generally occur, including the place of manufacture, the name and address of each foreign entity authorized or licensed to use the trademark, a brief description regarding the authorized use, and information regarding affiliates authorized to use the mark abroad.

Once registration occurs, CBP will flag shipments of counterfeit products that fall outside the expected import profile. This has the twin advantages of allowing ready entry for authorized goods while allowing CBP to hold goods that appear to be unauthorized, until such time as CBP can contact the owner of the recorded intellectual property to confirm whether the entry is authorized. Unauthorized goods are destroyed by CBP or released to the authorized owner of the intellectual property for an additional fee. Through this process the authorized owner not only can bar infringing goods, but can also gain valuable information regarding which retailers and distributors are selling counterfeit goods.

7. "What about the False Claims Act (FCA)? Is it also a tool that is likely to see increasing use in the next few years?"

Another tool that can be used to fight the underpayment of duties is the FCA. Since the passage of the 1986 amendments to the law, the FCA (codified at 31 U.S.C. §§ 3729 33) has become a vigorous tool to fight lost government revenue, as shown by the fact that in 2014 the DOJ recovered nearly $6 billion from FCA cases. Each successful prosecution of an FCA claim enables the potential collection of treble damages, plus penalties and an additional fine of up to $11,000 per false claim.

The FCA provides a mechanism whereby individuals can file lawsuits regarding claims that persons and companies have defrauded governmental programs. Since the law includes a qui tam provision that allows persons who are not affiliated with the government (relators) to bring cases on behalf of the U.S. government, and to receive a portion of any recovered damages, activity under the FCA largely is driven by private actors bringing cases, with the DOJ becoming involved thereafter.

The FCA increasingly is being used in the Customs area. The Third Circuit Court of Appeals, among other courts, has confirmed the FCA appropriately can be used for the knowing evasion of Customs duties. For example, in United States v. Toyo Ink Manufacturing, the president of a domestic producer of a violet pigment brought an FCA action against a Japanese competitor, alleging the evasion of antidumping and countervailing duties through false claims that Japan and Mexico were the countries of origin, when China and India (two countries under orders) were appropriate. Toyo settled the matter, agreeing to pay $45 million, plus interest, without admitting fault, resulting in a payment to the original relator of almost $8 million (as well as a likely commercial benefit to the U.S. business). In addition to securing favorable outcomes like this, the use of the FCA process also potentially brings Customs issues to the attention of CBP, which can assess its own penalties for the same conduct. For these reasons, the use of FCA claims for Customs violations is expected to continue to rise with the new administration, making FCA claims a regular part of Customs enforcement.

8. "What are the expected hot-button issues where Customs will be focusing its attention under the new administration?"

CBP is resource-challenged. Practitioners before CBP have horror stories of lost filings, requests for advisory opinions and protests that take years to resolve, and difficulties in achieving uniform rulings from port to port. Further, the port-by-port administration of CBP can make for great differences in the enforcement priorities, classification approach, and other issues encountered by individual importers. It is expected that the new Centers of Excellence program will take care of some of these issues, yet it will still be true that the issues of concern will vary by port.

Nonetheless, despite these uncertainties, we anticipate the following areas will see significant attention from CBP over the coming administration:

Informed compliance letters. A recent development is the issuance of "informed compliance" letters by CBP. These letters often are issued to major U.S. importers to encourage them to review their recent entries and determine if they have treated entries correctly where they acted as the importer of record. These letters often are sent to major importers who have not been audited in the past decade or that are viewed as being at a higher risk for violations.

The receipt of an informed compliance notification letter means CBP has reviewed the data of an importer of record and likely identified specific problems with its import transactions, putting the company at an increased risk of a comprehensive audit. According to CBP officials, the expectation is that companies that receive these letters will soon be the subject of a "focused assessment" or other type of CBP audit in the near future. The letters, thus, are a way of encouraging major importers to enhance their compliance and file voluntary self-disclosures in anticipation of the audit.

To provide further encouragement, CBP has indicated that companies that do not follow up with a voluntary self-disclosure can expect that any subsequently discovered violations will be subject to higher-than-normal penalties. The letters warn not only of potential monetary penalties, but also the prospect of seizure or forfeiture of imported merchandise.

While the letters do not change the operative level of care expected of all importers (who are required to exercise "reasonable care" in the execution of their Customs obligations), the letters serve as a warning shot that the company needs to get its Customs house in order and should start:

  • Preparing for a CBP audit
  • Reviewing its Customs compliance policies
  • Reviewing the care taken by its Customs brokers
  • Conducting a risk assessment, including with regard to the issues identified in the letter
  • Determining if its classifications are correct and supported by the product attributes
  • Determining whether any post-entry adjustments are needed
  • Determining whether free trade preferences are supported by FTA certificates of origin and appropriate regional content
  • Evaluating whether off-invoice items such as royalties and assists are appropriately recognized
  • Considering whether there are any other issues in the company's import data to indicate compliance failures and penalty risks

While the assessment should start with the issues identified in the letter, the review should be comprehensive. CBP auditors have the authority to examine any areas where compliance may be lacking. If issues are found, the company should consider whether the issues are systemic. If the entries are too numerous to make a quick evaluation, statistical sampling can be used to help evaluate the scope of potential issues and the potential risk exposure. Further, the review also should cover the company's Customs compliance program and the rigor of its compliance measures and training, as these are evaluated by CBP in an audit. Any errors should be documented and a plan put in place to strengthen the company's compliance procedures and internal controls to prevent their recurrence.

The company also should strongly consider filing a prior disclosure. This can be accomplished using an initial marker, which merely informs CBP that an investigation of potential compliance lapses is ongoing. This locks in voluntary disclosure credit while buying time to complete a thorough investigation and to provide a subsequent full report.

Forced labor in China. In 2016, Customs issued nationwide orders instructing U.S. ports to detain certain products produced by forced labor in China. The authority for these orders is found in 19 U.S.C. § 1307 (known as section 307), which authorizes CBP to issue orders prohibiting importation of merchandise mined, produced, or manufactured, wholly or in part, by forced labor. Although section 307 has been in place for years, the TFTEA enhanced the efficacy of the provision by removing certain restrictions on when the provision could be applied, thereby removing a loophole which provided that the provision only could be applied if the "consumptive demand" for those goods in the United States exceeded domestic production. Under the revised law, any interested party (including competitors and public interest groups) may request that CBP investigate whether an import was produced using forced labor in another country. If the investigation proves the charges, then any products found to be made in whole or in part using forced labor are subject to exclusion or seizure.

CBP has been making the blockage of goods produced by forced labor a priority, as shown by CBP outreach on the program19and frequent press releases announcing detention orders for violations.20 Given the prominent role that criticisms of China played in the campaign, we expect this focus will increase, making it imperative that companies that import from China put in place enhanced due diligence and supply chain compliance measures, as described below.

Trade security issues. Since September 11, the enhancement of border security has been a priority of CBP, not only for immigration and visits to the United States, but also with regard to the movement of goods. We expect these efforts will accelerate under the new administration, as part of the anticipated Trump administration national security initiative. This likely will mean changes in the frequency of searches of incoming cargo, potentially impacting the time of clearance, especially at busy ports. It may also mean changes in the operation of, or eligibility to use, the C-TPAT program, a voluntary program that allows certified importers, carriers, consolidators, licensed Customs brokers, and manufacturers to enjoy expedited processing and transit times at the border, reduced number of CBP examinations, and other benefits of being a trusted CBP partner.21

We also anticipate that the money being spent on the Mérida Initiative, which was designed to help Mexico increase its border security in the broad sense of disrupting Mexican criminal activity and enhancing Mexican police capabilities, will be refocused on the issue of creating enhanced inspections of goods flowing between the two countries.

Revenue collection issues. Although post 9/11 border security concerns have somewhat eclipsed what was long considered the main role of Customs — the collection of tariffs on entries — tariff collection still remains a core function of CBP. In particular, we are seeing a renewed emphasis by CBP on the issues of:

  • The classification of goods
  • The appropriate valuation of goods, especially with regard to off-invoice items (royalties and assists, and so forth)
  • The correct country of enforcement
  • The importer maintaining the appropriate support for regional content and maintaining free trade agreement certificates of origin at the time of importation
  • The declaration of the correct country of origin based upon the appropriate rules of substantial transformation or tariff shifts (e.g., for NAFTA)
  • The declaration of any payment of antidumping and countervailing duty tariffs.

Importers should review the way in which these issues are handled to ensure they are occurring in a compliant fashion.

9. "Sounds scary. What can I do to cope?"

All importers should evaluate whether they need to enhance their compliance measures in the following ways:

  • Enhance/Implement a Customs compliance program. It is surprising that even large importers often do not have compliance programs in place, or have compliances measures that are dated or are not well adapted to current import patterns. Since the existence and effectiveness of a compliance program is one of the first items tested by CBP in an audit, a pro-active review of the compliance program is the starting point for enhanced Customs compliance.
  • Conduct a classification and valuation review. Importers should regularly review the items they commonly import and confirm the accuracy of HTS classifications. These classifications should be maintained in a tariff classification database that is available to Customs brokers or any other party responsible for ensuring correct entry. Importers also should review the methodologies that are used to calculate the ad valorem value of entries, paying particular attention to transactions with affiliates and to whether the valuation includes all off-invoice items, such as royalties and assists.
  • Antidumping and countervailing duties product review. The collection of full AD/CVD tariffs and the prevention of circumvention of the hundreds of AD/CVD orders currently in effect is a priority of CBP. The TFTEA gives CBP the tools to fight antidumping and countervailing duty evasion, as discussed above. Companies that know they are importing goods subject to these orders should carefully review their entries to ensure they are occurring in good order with the payment of full duties, consistent declaration of the correct country of origin and coverage by the orders, and so forth. Importers should confirm their judgment that goods being declared as not being subject to AD/CVD orders are correctly classified. Where importers of record are importing goods that are covered by antidumping duty orders, they should confirm that they are in a position to certify that they have not entered into an agreement to receive, and have not in fact received, any reimbursement of antidumping duties. The importer should confirm that it is consistently following this requirement, as any failure to provide the required certification will lead both CBP and the Department of Commerce to presume reimbursement, thereby doubling the duties to be imposed.22
  • FTA claims. Importers should review any FTA or duty preference program instructions to determine their accuracy. Common issues to confirm are whether the regional content requirements are met, whether required certificates of origin are at hand at the time of entry, and that all required documentation to support claimed free-trade preferences is maintained for the appropriate period of time.
  • Coordinate with freight forwarders and Customs brokers. Importers should engage with their freight forwarders and Customs brokers to determine whether Customs requirements are being consistently followed and should coordinate required recordkeeping. Although it is acceptable to delegate responsibility for import responsibilities to third parties, the ultimate responsibility for the handling of entries is on the importer of record.
  • Conduct a Customs audit. Larger importers, or importers that have not been chosen for an audit in recent years, should consider performing a Customs audit. A good starting point is found in the "best practices of compliant companies" on the Customs website;23 Customs specialists can help design a tailored audit that reflects the importer's individual risk profile, goods imported, country sourcing of goods, and other patterns of importation.

As noted above, CBP is emphasizing the combatting of goods that benefited from forced labor (adult and children alike). With enhanced section 307 giving CBP the tools to block more imports, companies should be pro-active in monitoring and auditing suppliers for lapses that could lead to costly detentions by CBP. Measures to consider implementing include the following:

  • Monitor U.S. government intelligence. The U.S. Department of Labor, in consultation with the U.S. Departments of State and Homeland Security, publishes an annual list of products believed to be produced by forced labor. Importers should monitor this list to see if the U.S. government is flagging products they commonly import.
  • Review products where the company acts as the importer of record. Importers should be aware of all products where they commonly act as the importer of record, as doing so automatically makes them the responsible parties for dealings with CBP, including with regard to the issue of CBP forced labor inquiries.
  • Conduct a supply chain audit and perform supplier due diligence. Because the forced labor provisions are designed, by definition, to bring in outside parties, it seldom is a good idea to wait for any CBP inquiry, as it often will not be possible to put together a response within a tight timeframe where third parties are involved. Waiting until receiving a notice from CBP of a potential violation risks seizures, loss of the goods, penalties, lost business, and public relations issues. Pro-active due diligence on the supply chain will allow the importer to assess the risk of a violation, determine the types of products most likely to be implicated, identify suppliers and countries of concern, allow for the creation of an audit schedule of suppliers, and generally gather information to disprove any allegation of the use of forced labor. Visits to supplier sites and gathering knowledge about the sub-suppliers that also form a part of the supply chain can also forestall problems down the road.
  • Follow up on red flags. Importers that source from countries of concern, such as China, should monitor suppliers for potential red flags that might indicate sourcing issues. Importers that discover or reasonably suspect the use of forced labor should shift to alternative sources.
  • Implement a compliance program. All importers should have a comprehensive Customs/import compliance policy; any companies that do not should implement one. The program should be reviewed to ensure it addresses supply chain management, including provisions for limiting the potential for human trafficking and forced labor in the supply chain.
  • Gather certifications. Importers should review all supplier agreements to confirm that they contain an affirmative certification that the supplier is: (1) aware of the company's Customs/import compliance policy; (2) abides by its terms; (3) specifically is not using any form of forced labor; (4) will cooperate with any investigation of same by the importer; and (5) will be punished if these provisions are violated, including through the requirement to cover the costs of an investigation and the termination of the supply arrangement.
  • Conduct training. Importers should incorporate training regarding forced labor requirements into Customs/import training not only for persons who directly handle import transactions, but also for employees who work directly with the company's supply chain.
  • Consider joining the Customs-Trade Partnership against Terrorism (C-TPAT) program. C-TPAT is a voluntary supply chain security program, where companies work with CBP to improve the security of private companies' supply chains. Although the provision is aimed at terrorism, becoming part of C-TPAT helps shore up the reliability and accountability of the company's supply chain.
  • Review government contracts. Finally, government contractors should be aware that they have a potential second source of liability, which is Executive Order 13,627. That Executive Order, implemented into the Federal Acquisition Regulation, prohibits U.S. government agencies from acquiring products produced by forced or indentured child labor, while also implementing the requirement for government contractors to certify they neither use nor source from companies that use forced labor. The penalties for violating this prohibition include termination of the government contract, debarment, and civil and criminal punishment.

Miscellaneous items. Finally, importers should look into the following housekeeping issues, which can lead to compliance lapses and, potentially, costly penalties:

  • Data collection

    • Request ITRAC data. It is a good idea periodically to request an Importer Trade Activity (ITRAC) Report from CBP for the last five years as a way of gathering a copy of all data held by Customs regarding entries for the company as an importer of record. Such information can be used for compliance purposes and, in the event of a Customs-focused assessment or voluntary self-disclosure, as a complete record of all imports where the company acted as importer of record. Since CBP is transitioning to the Automated Commercial Environment (ACE) in 2017, ITRAC data will eventually be discontinued, making it important to gather a copy of the ITRAC data while it is still available.
    • Request Census Bureau data. The Export Administration Regulations (EAR) require that exporters maintain certain information regarding exports for a period of five years after the time of exportation. To help comply with this requirement, it is a good idea to request Census Bureau data for the prior twelve months once a year.
    • Sign up for ACE. Importers that have not signed up for ACE should do so. Advantages include the elimination of paper entry summaries, decreased administrative costs, enhanced ACE report capabilities, and remote location filings for entry summaries.
  • Bond issues

    • Bond sufficiency. CBP monitors the sufficiency of continuous entry bonds to determine if the bond covers likely import activity. CBP determinations of inadequacy can result in increases in the bond amount over a short period of time (15 days). Failure to comply can result in CBP declaring the bond insufficient, thereby forcing the use of more expensive single entry bonds.
    • Listing multiple principals on the same bond. Companies should consider whether it makes sense to include multiple entities on the same bond. While doing so allows for bond savings, each entity is jointly and severally liable and responsible for paying any claim regardless of which entity is at fault. Any one of the entities can terminate the bond at any time, which can cause problems if the management of the bond is not coordinated.
  • Customs broker dealings

    • Custom broker powers of attorney. Although it is common to grant a Customs powers of attorney to Customs brokers, these grants should be monitored to ensure they are accurate and there are no unnecessary legacy authorizations in place. Reviewing ACE or ITRAC data allows for the ready identification of all Customs brokers who have made entries on behalf of an importer of record by reviewing the filer codes on the entries. Any unneeded powers of attorney should be revoked.
  • Entry clearance items

    • Update names and addresses on file with CBP. Under new procedures, CBP now maintains an importer-of-record program that seeks to more closely monitor companies that import, as a means of preventing fly-by-night importers who seek to evade duties (particularly antidumping and countervailing duties). CBP uses name and contact information from Form 5106 to communicate with importers. Importers should review the information on file with CBP to ensure the accuracy of all information and that it meets new importer tracking requirements.
    • Manifest confidential treatment. Much of the information filed as part of the entry process is available for review by companies such as PIERS, which gather it together and sell it, including to competitors. By filing a government confidentiality request and keeping it up to date, importers can take steps to keep import data confidential.
    • Confirm your reconciliation items. Companies that participate in CBP's Reconciliation Prototype Program should ensure they (or their Customs brokers) are appropriately flagging entries, as CBP will no longer allow a blanket flag as of January 14, 2017. A monitoring program can help ensure the reconciliation process occurs appropriately, with reconciliation being used to reflect post-importation value additions and adjustments for such items as retroactive transfer price adjustments, assists, royalties, and other value elements that are unknown at the time of entry.
    • Partner Government Agencies (PGAs). There are at least sixteen partner government agencies, ranging from the Department of Agriculture to the Department of Commerce to the Environmental Protection Agency that work with CBP to effectuate specialty requirements, such as for the importation of food and medicine, and a wide range of other products.24 Importers who are impacted by these specialty requirements should ensure that they are adhering to all regulations issued by the partner agencies and effectuated as they impact cross-border transactions through CBP regulations and control.
    • Updated certificates of origin. FTAs, including NAFTA, often impose a requirement to have Certificates of Origin (COO) for anticipated duty preference claims. If these COOs are not in hand at the time of entry, then the entry is not eligible for duty preference, even if the rules of the FTA otherwise are met. Importers should work with their Customs brokers to ensure they have all required COOs on hand.
    • Steel entry requirements. In 2016, CBP instituted special procedures for the more than 100 steel products covered by antidumping and countervailing duty orders. These "live entry" procedures are designed to require the filing of electronic paperwork and upfront duties before the release of steel products subject to these orders. Importers of steel products should ensure they are correctly classifying steel entries, declaring the goods to be covered by these orders where appropriate, and that they are adhering to the "live entry" procedures.
  • Export items

    • Destination control statement (DCS). Exports require a Destination Control Statement, which appears on export documentation. The language being used should be reviewed to ensure it meets current regulatory requirements, even for EAR99 products.
    • Denied parties screening/end use/end user controls. The Office of Foreign Assets Control and the Bureau of Industry and Security restrict exports to certain persons who have been determined to have taken actions contrary to U.S. foreign policy. Exporters should confirm they maintain screening protocols that are consistently followed to prevent such dealings. Companies should also ensure that they consistently follow up on red flags indicating that goods are potentially being used/diverted for use by inappropriate end users/inappropriate end uses, such as for the support of terrorism or the proliferation of weapons of mass destruction.
    • Controlled goods. Exporters should be certain that they have not fallen into "EAR99" mode, automatically classifying all exports as EAR99 where they are, in fact, controlled under the ITAR or the EAR. Even commercial goods can become subject to the ITAR, for example, if they are modified to meet military specifications or for military use. Companies that have not undertaken a classification review in recent years should consider performing one, particularly if they are known to export goods that are controlled by the ITAR/on the U.S. Munitions List or controlled by the EAR/have an Export Control Classification Number (ECCN).
  • Trademark and trade name protections. As noted above, CBP has the ability to help bar entries that violate trademarks and trade names that are registered with the CBP. Companies that believe they are seeing infringing imports should consider taking steps to protect their intellectual property through the registration process or should consider whether seeking section 337 import protections is appropriate.
  • Training. Importers should train all compliance stakeholders annually on Customs requirements. This allows updating all relevant personnel regarding changes to CBP regulations, which often change, especially in the current environment when CBP is reflecting new statutory changes.

10. "Are there any money-saving opportunities?"

The TFTEA contains certain provisions that can aid importers. Among these are the increase of the de minimis entry threshold from $200 to $800, which increases eligibility for duty-free entries without the requirements of a formal entry; the expansion of the American Goods Returned program (HTS 9801.00.10) to certain goods that are not of U.S. origin, but were at one time in the United States; duty-free treatment for certain goods from Nepal; and enhanced duty drawback rules (available beginning in February of 2018).

Companies also should consider whether they can benefit from ways to process or import goods outside the Customs territory of the United States or otherwise without needing to pay duties, such as through the use of Free Trade Zones, the use of Customs bonded warehouses, or through use of Temporary Importation under Bond procedures. Although the exact circumstances where such measures would apply requires individual consideration, a Customs expert may be able to identify significant money-saving opportunities.

Finally, importers of record should realize that audits of imports can result in the discovery of areas of missed opportunities under free trade agreements. Chapters 89 and 99, the potential use of FTZs, TIBs, customs bonded warehouses, and other areas where there may be money-saving opportunities. An importer can perform reviews of entry data to capture opportunities of duty overpayment. If these exist, importers may be able to file requests for refunds using section 520d claims or post-summary corrections.

CONCLUSION

As shown, the landscape under the new administration is uncertain. Missteps by importers can lead to costly seizures and penalties. Fortunately, there are a great many steps that importers can take to sharply reduce their risk of a Customs audit or inquiry, or to secure a good outcome if an audit, in fact, does occur. The compliance advice outlined above is a good starting point for any importer, but a Customs specialist will be able to design a program that is tailored to the company's individual products, import patterns, and business profile.

* * *

The international climate for U.S.-based multinational companies and non-U.S. based companies that sell into the United States has never been more uncertain. This client alert is the fourth of a series of articles that is being prepared to help companies navigate the uncertain international trade and regulatory environment. Already published "Ten Question" articles related to the transition to a new administration cover NAFTA, international trade (antidumping and countervailing duty) actions, and likely changes in how the Committee of Foreign Investment in the United States (CFIUS) evaluates investment in the United States. Future client alerts will cover the Office of Foreign Asset Controls (OFAC economic sanctions) and Export Controls, the Foreign Corrupt Practices Act, the future of white collar enforcement, regulatory concerns pertinent to Private Equity firms, and cybersecurity.

Footnotes

1. See Gregory Husisian and Robert Huey, "NAFTA and the New Trump Administration: Your Top Ten Questions Answered," https://www.foley.com/nafta-and-the-new-trump-administration-12-01-2016/.

2. See Gregory Husisian and Robert Huey, "International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered," https://www.foley.com/international-trade-litigation-and-the-new-trump-administration-your-top-ten-questions-answered-01-06-2017/.

3. See H.R. 644,114th Cong. (2016), https://www.gpo.gov/fdsys/pkg/BILLS-114hr644enr/pdf/BILLS-114hr644enr.pdf.

4. See U.S. Customs and Border Protection, Regulatory Implementation of the Centers of Excellence and Expertise, 81 Fed. Reg. 92,978 (Dec. 20, 2016).

5. 19 U.S.C. § 1592 (2011).

6. 18 U.S.C. § 541 (1994).

7. 18 U.S.C. § 542 (1996).

8. 18 U.S.C. § 1519 (2002) ("Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, ... any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States ... or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.").

9. 18 U.S.C. § 371 (1994).

10. 18 U.S.C. § 1956 (2016), 18 U.S.C. § 1957 (2012).

11. 18 U.S.C. § 545 (2006).

12. 18 U.S.C. § 2 (1951).

13. 31 U.S.C. §§ 3729-33 (2009-2010).

14. See Gregory Husisian and Robert Huey, "NAFTA and the New Trump Administration: Your Top Ten Questions Answered," https://www.foley.com/nafta-and-the-new-trump-administration-12-01-2016/.

15. See Gregory Husisian and Robert Huey, "International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered," https://www.foley.com/international-trade-litigation-and-the-new-trump-administration-your-top-ten-questions-answered-01-06-2017/.

16. Id.

17. See U.S. Gov't Accountability Off., GAO-08751, Antidumping and Countervailing Duties: CBP Action Needed to Reduce Processing Errors and Mitigate Nonpayment Risk (2016), http://www.gao.gov/assets/680/678419.pdf.

18. See U.S. Customs and Boarder Protection, "Investigation of Claims of Evasion of Antidumping and Countervailing Duties," 81 Fed. Reg. 56,477 (Aug. 22, 2016).

19. See CBP, "Forced Labor" (2017), https://www.cbp.gov/trade/trade-community/programs-outreach/convict-importations.

20. See CBP, "CBP Commissioner Issues Detention Order on Stevia Produced in China with Forced Labor," (2016), https://www.cbp.gov/newsroom/national-media-release/cbp-commissioner-issues-detention-order-stevia-produced-china-forced; CBP, CBP Commissioner Issues Detention Order on Potassium Products Produced in China with Forced Labor (2016), https://www.cbp.gov/newsroom/national-media-release/cbp-commissioner-issues-detention-order-potassium-products-produced (2016); CBP, CBP Commissioner Issues Detention Order on Chemical, Fiber Products Produced by Forced Labor in China (2016), https://www.cbp.gov/newsroom/national-media-release/cbp-commissioner-issues-detention-order-chemical-fiber-products.

21. See CBP, "C-TPAT: Customs-Trade Partnership Against Terrorism" (2016), https://www.cbp.gov/border-security/ports-entry/cargo-security/c-tpat-Customs-trade-partnership-against-terrorism.

22. See CBP, "Guidance for Reimbursement Certificates," https://www.cbp.gov/document/guidance/guidance-reimbursement-certificates.

23. See CBP, Best Practices of Compliant Companies (2013), https://www.cbp.gov/document/forms/best-practices-compliant-companies.

24. See CBP, "Partner Government Agencies (PGAs) Involved with BIEC," https://www.cbp.gov/trade/trade-community/border-interagency-executive-council-biec/partner-government-agencies-pgas-involved-biec.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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