Issue 282, December 5, 2000
In October 1998, Customs launched the ACS Reconciliation Prototype, creating a standardized way of making certain types of post-entry summary adjustments where required information is not determinable at the time of entry. Unlike consumption entries that are on a 314 day liquidation cycle, international traders utilizing the reconciliation prototype have an affirmative obligation to close out those entries within a required time period -- 12 months for NAFTA entries and 15 months for all others. Failure to close out reconciliation entries within the mandatory time period can result in the imposition of liquidated damage claims against the importer. Currently, 1600 importers are participating in the prototype, flagging approximately 2.9 million entries.

The deadlines are now passing on entries flagged during the first full year of the prototype and many importers are faced with the task of ascertaining and submitting the missing information. Many are failing to do so, and as a result Customs is issuing demands for liquidated damages. Depending on the situation surrounding an importer's failure to file a reconciliation entry or to timely file and pay additional duties, Customs can assess (subject to mitigation) a demand for liquidated damages ranging from the entered value of all unreconciled flagged entries, to the greater of $1000.00, or double the duties, taxes and fees due on the reconciliation. Customs anticipates an increase in its demands for liquidated damages as the various ports become more involved in reviewing reconciliations.

A particularly vulnerable group of importers are those who traditionally filed yearly cost submissions to justify declared values of: 1) HTSUS 9802 merchandise; 2) merchandise coming out of Mexican maquiladoras; or, 3) merchandise appraised pursuant to computed or deductive value. Customs has made it clear that importers who traditionally filed annual cost submissions must use the reconciliation prototype to actualize standard costs.

What if you failed to apply for the reconciliation prototype, believing that a cost submission would still suffice? Customs has stated that it will treat all cost submissions either as protests (if a refund is due) or as prior disclosures (if an underpayment is discovered). Importers should be very concerned if they find themselves facing the latter scenario. The Customs Regulations are very clear about the form and substance of prior disclosures. Failure to abide by these requirements can result in the rejection of the disclosure and the commencement of a penalty case against the importer under 19 U.S.C. § 1592.

Our contributing writer, F.D. "Rick" Van Arnam, is a Partner at the Customs and international trade law firm of Barnes, Richardson & Colburn in New York, and can be reached via email or at (212) 725-0200.

Please note that due to the complex nature of the subject matter, Danzas AEI cannot be responsible for actions taken by the reader in reliance on the information contained herein without prior consultation with Danzas AEI.