As a customs and trade compliance professional, the sentence that fills me with dread is “Our customs broker does everything.” If I had a dollar for every time I have heard that, I would be sitting on a beach somewhere right now.
A customs broker can be an essential partner in the supply chain by assisting a company with the mechanics of importing and exporting. However, just because the customs broker files import and export declarations on a company’s behalf does not ensure they are complete and accurate. A customs broker does not act as the importer or exporter of the goods. Under U.S. Customs law, the importer or exporter named on the customs declaration is responsible for compliance with all applicable trade regulations.
In addition, relying solely on documentation provided by suppliers for the data elements required to complete customs declarations will not relieve the importer or exporter of its compliance obligations. The supplier is not responsible for ensuring the information submitted to customs and export authorities is accurate. That is the duty of the importer or exporter.
Compliance cannot be outsourced.
Attempting to delegate responsibility for compliance to a third party, such as a customs broker or supplier, is risky. Here are a few reasons you cannot outsource compliance.
A Customs Broker Does Not Know Your Products
A customs broker does not know your products as well as you do. The risk of relying on a customs broker to determine data elements, such classification or country or origin, without in-depth product knowledge is that mistakes are more likely. The result is incorrect declarations and, more importantly, the incorrect duty payment, a significant compliance issue for customs authorities.
Furthermore, an inaccurate classification could lead to an incorrect assessment of the partner government agency (PGA) requirements that apply to the goods since this is often based on the classification. As a consequence, the PGA will not have visibility of the shipment and will not receive the information it needs to verify compliance before releasing the goods. Circumventing PGA requirements is also a compliance concern that can lead to increased scrutiny of future imports by U.S. Customs.
Supplier Documentation Is Not Always Reliable
Suppliers do not always provide invoices that contain the right data elements for customs declarations. For example, classification or country of origin may be missing, incorrect or incomplete. When a customs broker must rely solely on information found on the documents with no communication from the importer or exporter, the wrong data may be submitted on the declaration resulting in compliance issues.
FTA Troubles
Returning to the point about third parties not knowing your products as well as you do, another risk is that customs brokers may incorrectly claim duty free treatment under free trade agreements (FTA). For instance, a customs broker may try to do you a favor by claiming duty free entry for imported goods under the U.S. Mexico Canada Agreement (USMCA) simply because the import invoice indicates Mexico as the country of origin. The USMCA has specific preferential origin requirements that must be met that are usually more detailed than the non-preferential origin requirements. A product could have non-preferential origin Mexico, but not qualify for the USMCA. A customs broker would be unable to verify the USMCA claim based solely on the import invoice.
If goods do not quality for an FTA, the result may be an underpayment of duties, which can lead to fines and penalties. Even if the goods are normally duty free, claiming an FTA obligates the importer to meet the origin requirements and to maintain records to show this, creating an unnecessary liability. Without confirmation from the importer, a customs broker should not make an FTA claim.
Export Control Risk
It can be tempting to rely on a custom broker to perform necessary export control activities, such as assigning the ECCN, determining license requirements, and screening against sanctions and blocked party lists. The danger in doing so is that the exporter has no actual knowledge of what checks the broker is performing, whether they are complete and accurate, or even if they are being done at all. Without specific product information, it is difficult for a third party to take on this responsibility. U.S. export authorities expect the exporter to have processes in place to perform all necessary export control checks, or at least have oversight over any checks carried out by the customs broker. If an exporter does not take an active role in the export control process, violations could occur and fines and penalties could be severe.
Liability for Customs Broker Errors
Although a customs broker files declarations on behalf of the importing or exporting company, it is not liable for any errors. The import or exporter is ultimately responsible for making any necessary corrections and for paying any resulting fines and penalties issued by authorities. Third party errors become YOUR compliance problem. Consistent compliance issues can affect a company’s reputation with customs or export authorities and mark it a risky trader. This can invite increased scrutiny from authorities, leading to shipment delays, fines, and penalties, or even a revocation of export privileges.
The best way to avoid these risks is to take full responsibility for compliance into your own hands. As the importer or exporter, you need to work closely with your external partners so that they have complete information and instructions needed to do their job.
Establish internal processes and procedures to determine data elements for key trade areas, such as classification, country of origin, FTA qualification, PGA requirements and export controls. Provide instructions to your broker regarding where and how they should obtain the data needed for declarations. Describe what information they must receive from you, and what data they may be able to determine themselves. Send guidelines to suppliers regarding the information that must appear on invoices. Review and verify all information prior to providing documents to the customs broker. For example, a supplier may provide the classification its country customs authority prefers, but that may differ from what is accepted in the U.S.
In addition, establish a communication and escalation process with your customs broker to set clear guidelines regarding when they must contact the company and whom to contact should questions arise. These measures will minimize declaration errors.
Lastly, establish periodic performance reviews with your customs broker to discuss errors, why they happened, and how they should be resolved. Develop corrective actions to ensure the same issues do not occur again in the future.
The bottom line is you cannot rely on a third party to ensure your company is compliant. Only you can do that.
