By Joan Koenig and Beata K. Spuhler

For most, the New Year is a time for making resolutions in an effort to improve upon the previous year. While reflecting on personal changes, one should also remember to take important steps to maintain an effective trade compliance program, which not only seeks to prevent bad things from happening, but also to proactively seek out opportunities.

Below are some things to keep in mind to help improve your trade compliance program, both on the import and export side of the house, suggestions to avoid unnecessary surprises, and ideas to perhaps even find new savings opportunities in the New Year.


“I Will File My Taxes On Time.”

  • Prepare and submit your 2013 self-classification report for any exports of Information Security (i.e., encryption) products that you self-classified and exported under License Exception ENC in 2013. This report is due by February 1, so don’t wait!
  • Request your Automated Export System (AES) data from Census. Review your report for potential errors, as well as possible opportunities. Waiting until February should allow sufficient time for the data to be updated by the Government and allow you to receive complete data for calendar year 2013.

“I Will Clean My Closets.”

  • Review a sample of your AES data to ensure that all data is complete and accurate. Remember that you have an ongoing obligation to correct errors, and the sooner you find a systemic error, the fewer “bad” filings you will have to correct. Also check to see if filers you don’t recognize are reporting under your EIN.
  • If you have an Encryption Registration Number or Directorate of Defense Trade Controls (DDTC) registration, review to ensure that all material changes that occurred during the year were reported to the relevant agencies (DDTC registration changes are due within 5 days of the occurrence, but better late than waiting until your registration renewal).

“I Will Lose Weight.”

  • With Export Control Reform moving full speed ahead, have you reviewed your registration to make sure 1) you still need to be registered and 2) that you have removed inapplicable Categories from your registration?
  • Do a batch denied-parties screen of your vendors, customers, service providers, and others to ensure that no SDN changes slipped by you during the year.


“I Will Keep Up with the Housekeeping.”

  • File a request with U.S. Customs and Border Protection (CBP) to provide for confidential treatment of key inward and outward manifest information. If you’ve already done this, watch out for mandatory biennial renewal requirements, and take the time to review company and affiliate names currently protected, submitting updates or amendments as needed to obtain the broadest protection possible.
  • Request your Importer Trade Activity Report (ITRAC) from CBP. Review the report for potential errors, as well as possible opportunities. Waiting until February should allow sufficient time for the data to be updated by the Government and allow you to receive complete data for calendar year 2013. Once you have your trade data, you should:
    • Review broker filer codes to identify unauthorized brokers and export filers who might be unauthorized and ensure that outstanding POAs are properly revoked. If your brokers and forwarders have the authority to assign sub-agents (which is typically not a good idea), you may be surprised who is acting on your behalf. 
    • Investigate duty preference claims that were made but not authorized (e.g., imports under the NAFTA or GSP where goods use was not cleared by your trade compliance team).
    • Look for anomalies in the trade data and take action to correct errors and avoid costly penalties. Are your related party designations accurate? Are you claiming NAFTA when the country of origin says China? Are you importing one product from a supplier but with varying HTSUS numbers? Are unit values consistent?
    • Schedule a meeting with your primary customs brokers and ensure that they have your latest and greatest tariff classification database, other government agency (OGA) requirements, customs broker guidelines, and duty preference program instructions. Remember they may have personnel turnover, so make sure you know the individuals who are acting on your behalf.
  • Put a training schedule together, identifying topics to be covered with trade compliance over the course of the year as well as other functional groups within the organization whose roles impact trade compliance (e.g., individuals who handle the company’s mergers and acquisitions, human resource personnel, engineering, purchasing, finance and others to make sure that their training stays up to date and that new hires are aware of trade compliance issues).
  • Review your Internal Controls. Are all of the links in your online procedures still accurate and working? Do your current internal controls reflect actual business practices? Has your organizational chart been updated to reflect personnel changes?

“I Will Reconnect with Old Friends.”

  • Renew lost connections with your friends in Accounts Payable and remind them how important they are to keeping the company compliant by communicating debit/credit memo adjustments, auditing payments to declared value, and other key compliance issues. Taking them out to a nice lunch couldn’t hurt either!
  • Have a chat around the water cooler with familiar faces from Tax. Touch base about the similarities and differences between customs and tax objectives and the impact on products imported from related parties.  Also, inquire about transfer price adjustments that may have occurred last year and determine if they have any updates to share on the company’s Transfer Pricing policy.  Further, mention how a First Sale program could reduce duty liability but not taxable income.
  • Make new friends in the Finance Department with knowledge of the General Ledger, to understand what potentially relevant customs activity may be recorded in those intriguing codes and what’s new on the fixed asset listing to help identify capital assets located outside the United States that may be used to produce imported merchandise.
  • Have you hugged your in-house counsel yet this year? They are key partners in covering trade compliance issues in supply, distribution, and sales agreements, and licensing agreements with potential royalties.

“I Will Be Fiscally Responsible.”

  • Is your company using middlemen in sourcing, and if so, is First Sale valuation being applied? If not, consider undertaking an analysis to determine potential savings, from both the customs and tax perspective.
  • Look for new opportunities to save. Does your ITRAC data indicate that you are importing from Korea? Singapore? Australia? Chile? Central America? Perhaps it is time to revisit Free Trade Agreement (FTA) and other duty preference program opportunities to make the trade compliance team a profit center for the company. See Drinker Biddle Alert “Focus on Savings Opportunities: Merchandise Processing Fees Eliminated for Pharmaceutical and Civil Aircraft Imports from Certain Free Trade Partner Countries.”
  • Determine where the company is subject to the highest duties and consider ways to reduce those duties. Are there alternative tariff classifications that should be considered, which are subject to lower duty rates? Does it make sense to participate in a Foreign Trade Zone (FTZ) to minimize merchandise processing fees and take advantage of inverted tariffs?
  • What about the possibility of Duty Drawback for goods previously imported and then subsequently exported?

“I Will Take More Initiative This Year.”

  • Review your internal controls and determine whether this is the year in which your company will strive for participation in Trusted Trader Programs, i.e., C-TPAT, Importer Self-Assessment (ISA) and Centers of Excellence and Expertise (CEE).
  • Take a stroll through the warehouse to review country of origin markings and look for potential labeling issues. Are labels not up to snuff with CBP’s marking statute? Do you see unqualified “Made in USA” marking that needs to be revisited?
  • Is it finally time to join Reconciliation rather than struggle with periodic disclosures or surprises from your finance and procurement teams? If you are participating in Reconciliation, vow to begin the annual Reconciliation process sooner to ensure a timely and stress-free filing.
  • Consider undertaking a gap analysis or internal review to identify risk areas that may not be taken into consideration in day-to-day trade compliance operations.
  • Now is a good time to revisit your periodic audit practices to determine if they are effective in identifying targeted risk areas and if the templates being used to record data are still working.
  • As a cautionary measure, remember that “free trade isn’t easy trade!”  Every duty preference program carries with it eligibility and mandatory recordkeeping requirements.


“Don’t Be Penny Wise and Pound Foolish This Year.”

  • Antidumping and Countervailing Duty is considered a priority trade area for CBP.
  • The stakes are often quite high, with duties in some cases exceeding 400%.
  • The cash deposit made by an importer at the time of entry is only a deposit: the actual antidumping and countervailing duties owed at liquidation could and usually are different – often much higher – than the cash deposits you made at the time of entry.
  • The scope of Antidumping and Countervailing Duty orders is often complex and vague. Therefore, when faced with an Antidumping or Countervailing Duty issue, don’t be penny wise and pound foolish: consult counsel to confirm whether the good is covered by the scope of an order. A call to counsel can prevent very large and unwanted duty bills down the road.

Everyone’s New Year’s resolutions will be different, but we hope that the above provokes some thought on options to consider this year. We are always available to help answer questions or provide additional support to help make your trade compliance program simply the best.

We wish everyone a happy, prosperous and compliant New Year! 

Source: Client Alert