Issue 398, April 3, 2003
The recent focus of Customs (now the Bureau of Customs and Border Protection (BCBP)) has been primarily upon security issues. However, the commercial operations and enforcement of Customs have not gone dormant, and importers should not disregard commercial compliance. One very vulnerable area for most importers is the numerous free trade and duty preference programs. Most importers are aware that they need specific duty-preference certifications (like the NAFTA Certificate of Origin) from the foreign exporter. However, the importers that rely solely on these documents risk loosing the duty benefits their businesses have come to rely upon if proper steps are not taken to ensure supporting information is available.

In Customs' Focused Assessment program, Customs has stated it will hold the importer responsible for substantiating that the imported product qualifies (i.e., meets the 35% value added test) for duty preference treatment under the Generalized System of Preferences (GSP). This documentation usually involves sensitive and detailed material costs, origin and production cost information solely under the control of the foreign supplier. The statute and/or regulations under most duty-preference programs, including the African Growth and Opportunity Act (AGOA) and Caribbean Basin Trade Partnership Act (CBTPA), have similar and, in some cases, more detailed requirements. Even the North American Free Trade Agreement (NAFTA) imposes specific production recordkeeping requirements. While these programs ostensibly impose these requirements upon the foreign exporters, the importer who simply relies on the certifications of the foreign party may have significant problems in substantiating its claims. Customs takes the position that in most cases it has the option of requesting this documentation from the importer, from the foreign exporter, or both. Furthermore, it is Customs' policy that if the importer is unable or the foreign exporter refuses to produce the required records, disallowance of the duty preference will result. Thus, Customs suggests that the importers establish internal controls that identify and gather the records needed to support the duty preference claims. In this regard, the "best practices" that relate to GSP or any duty preference program have been listed by Customs as including:

	Procedures to obtain any required or necessary documentation to support the claim (e.g., a contract or letter of credit provision requiring the supplier to provide supporting information at the time of shipment/entry or on demand).
	A verification process to determine that the imported merchandise qualifies for the duty preference programs utilized by the company.
	Periodic reviews of the duty preference programs and the entries, and use of the results to make corrections to past and present to entries and to its import operations as appropriate.

Every importer who utilizes or relies on these duty-preference programs should examine how it can substantiate its past, present and future duty-preference claims. The failure to support a claim, either in an audit or in response to a Customs request, can result in denial of the duty preference on that entry and possibly past and future entries as well. Therefore, today's investment in substantiating claims will result in an assurance of the duty savings in the future.

Our contributing writer, David M. Murphy, is a licensed Customs broker and a Partner at the Customs and International Trade law firm of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, and can be reached via email or at 212-557-4000.

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