In July 2016, the Houston Regulatory Audit office sent a letter to a number of large importers cautioning them to be sure their value declarations were correct, underscoring CBP’s position by pointing recipients to a long list of CBP informed compliance publications, and touting the advantages of correcting any errors by way of a prior disclosure.
Now we see Round 2. In early October 2016, the Agriculture and Prepared Products Center for Excellence and Expertise (“Center”) sent a letter to many fruit and vegetable importers asking more value questions. Specifically, the Center wanted to know:
- Was the importer purchasing his goods or receiving them on consignment?
- Are the parties related?
- From which suppliers is the importer purchasing?
- From which suppliers are the goods received on consignment?
- If on consignment, how are the goods being valued at time of entry?
- Is reconciliation filed? If not, what actions does the company take to determine if the actual cost of goods is more or less than the value declared at time of entry?
It is this last question that ties right into the revenue collection role of Customs and Border Protection (CBP). Is CBP collecting the right amount at time of entry? If the value is too low at time of entry, it must be corrected. Similarly, if it is too high, it should also be corrected.
The reaction of the trade community has been exactly what one would expect. Many produce importers are stunned to learn they may not have been correctly declaring their goods at time of entry, despite the efforts of many customs brokers to make sure importers understood the legal requirements. The reaction of many is “my produce is duty free, why is CBP making such a big deal?” “I’ve never heard of this before” is another typical reaction.
The starting point for this discussion is what does the law require? The value law and related regulations have been almost without change for about 20 years. The standard is transaction value or the freely offered or arms’ length price for a given shipment; in simplest terms – what is the sale price? If goods are imported on consignment, there is no sale price as there is no sale. Therefore, another method of value must be used. At the same time, the reasonable care standard (enacted in 1994) requires that if the importer cannot accurately state information on his entry, he is to flag that issue (classification, value, etc.) and provide the correct information when available by way of reconciliation. So, the required process is equally long-standing.
A stated purpose of the Centers for Excellence and Expertise was to become familiar with given industries and seek uniformity. The Center’s letter seeks to do just that. We can disagree whether this letter was the “best” method by which to accomplish the intended goal, but regardless of the product one imports, the classification and value must be correct at time of entry. So, what happens next?
There are on-going discussions between the trade community and CBP. Some have suggested the USDA Agriculture Marketing Service prices be used in lieu of actual sales prices, and thereby eliminate the need for reconciliation. Others have pointed out that could mean a higher price is declared at time of entry for some companies and a lower price for others. There is some produce that is subject to duty and various produce is subject to user fees, so there exists a financial consequence to this inquiry, including how invalid prices distort the balance of trade between countries.
As the issue is only newly raised, it is not clear what will be the outcome. What is clear is importers need to be sure their entry declarations are correct when made. Importers should also consider the value issue is one long overlooked by Customs and Border Protection and has now become a focus for the agency with its renewed efforts to train staff and pass along institutional knowledge.
Companies that export would be well-advised to also consider their value declarations. Periodically, various federal agencies look at exports and incorrect values often lead these agencies (typically of a law enforcement ilk) to conclude money laundering is taking place. The most recent example of this sort of mess was the auto export headaches that occurred recently.
Importers should take this opportunity to make sure their entries are correct when filed. Mistakes happen, and need to be promptly corrected. The real challenge, however, comes when the entries are wrong and the company has lax procedures. Taking the two letters together – from Regulatory Audit and the Center – CBP may have hit the tip of the iceberg. Importers of all products should take this opportunity to make sure their compliance programs are robust and lead to the highest level of compliance possible.