Companies shipping goods globally face increasing challenges ensuring customs and trade compliance while streamlining supply chains. Free trade agreements (FTAs), anti-forced labor initiatives, unfair trade actions, and export restrictions have significantly increased requirements for certifications and documentation throughout supply chains. Concurrently, authorities are escalating enforcement which increases the burden of providing documentation.
Software facilitating the storage and organization of key documents and data is a cost-effective tool that maximizes compliance, greatly reducing the burdensome processes to obtain documents and data on short notice when subject to government audit or corporate due diligence. Better data collection with the use of global trade management software also provides the opportunity to drive operational improvements and efficiencies.
Customs Recordkeeping Requirements
U.S. Customs and Border Protection (CBP) requires importers, carriers, and customs brokers to maintain all documentation that pertains to importing activity. CBP enforces record keeping requirements set forth in 19 U.S.C. § 1509(a)(1)(A) that provides an extensive list of relevant documents.
This list, often referred to by CBP as the "(a)(1)(A) list,” includes documents such as the entry summary, bond information, certificates of origin, commercial (or pro forma) invoice, packing list, payment records, manifests, and bill of lading, etc. The importer and other responsible parties must retain these records for five years after entry, and drawback records for three years after payment. CBP may request an importer to provide any of the “(a)(l)(A) list” documents typically, within a 30-day period.
Documents can be maintained in paper or electronically, provided that the record keeper obtains approval from CBP prior to relying on electronic recordkeeping. The electronic creation and maintenance of import documents presents the opportunity for importers and service providers to increase compliance while eliminating paper documents that are prone to loss and require expensive storage.
Even records that are maintained electronically are not always easily accessible, however, and aggregated for quick retrieval in response to a CBP document demand. Attention has to be paid to using solutions that meet the specific needs of CBP document retention policies and also facilitate other corporate compliance priorities.
Recordkeeping Risk Areas
With electronic records, importers and customs brokers have the opportunity to rely on software that stores and quickly retrieves key import/export compliance documents. A few examples are listed below.
FTA qualification. Duty reductions offered by FTAs require importers to maintain certificates of origin and backup financial and production records. These include bills of material with the origin of parts identified, description of the product’s manufacturing operations, declarations/affidavits confirming origin of the parts, and transportation documents showing direct shipment (among others). These records often are misplaced or never requested, thereby generating significant liability. Supply-chain software can assist in requesting, storing and organizing the records which can be immediately and inexpensively supplied to authorities upon request.
Compliance With Unfair Trade Actions/Trade Remedies. With the dramatic increase in antidumping and countervailing duty orders, CBP uses its authority under the Enforce and Protect Act of 2015 (EAPA) to investigate potential evasion of AD/CVD duties, which requires substantial documentation support proving a company’s goods have not evaded AD/CVD orders.
Similarly, CBP is closely scrutinizing imports containing Chinese-origin goods to ensure that importers are not avoiding the duty payments imposed by Section 301 of the Trade Act of 1974 on Chinese goods. Importers often have a challenge determining which of their imported goods are subject to Section 301 and AD/CVD duties because a Harmonized Tariff Schedule (HTS) provision might cover goods that are both in and out of scope of the duty actions.Software tools that ingest a company’s parts database can identify which goods are subject to the duties based on their product description and other key physical characteristics.
Forced Labor Inquiries. The U.S. and EU are dramatically stepping up efforts to eliminate forced labor. Proving goods were manufactured without forced labor requires certification from the final assembler of a good, and also from each company in the supply chain, back to the sourcing of raw materials.
Companies are using software products to issue questionnaires, request certifications, and collect sourcing records from all parties that touch their goods at any point in the supply chain.
Corporate Compliance/Environmental, Social, and Governance (ESG) Data. Increasing trade tensions between nations and aggressive government enforcement are requiring companies to reassess their supply chains, while facing new pressures to disclose ESG data. This generates enormous financial costs for companies tracking their environmental footprint and general corporate compliance for M&A deals and general compliance.
The high-quality and verifiable data collected in CBP processes can be repurposed to create software that is able to calculate carbon footprints for ESG reporting. From the moment goods enter the supply chain, a company can rely on this type of software to track the carbon emissions that are generated in the various modes of transport and warehousing.
Other Risk Areas. Export controls, sanctions, government procurement, “Made in USA” labeling, denied party and anti-money laundering (AML) screening.
Finally, as companies face an increasing burden of trade and corporate compliance responsibilities, they should reassess how they collect and maintain the records and data generated internally and received from their brokers/freight forwarders, suppliers, and others in the supply chain. Cost-efficient software tools are available that are technology-driven and don’t require increasing internal compliance personnel.
Corporate compliance responsibilities are only increasing, so the time is ripe for companies to adopt cost-efficient software that enhances compliance.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
David R. Stepp is a partner in the Los Angeles office of Crowell & Moring. He is an experienced trade lawyer who provides multinational companies with strategic advice on global customs, supply chain and international trade compliance matters.
Christopher Wall is the founder and CEO of Zeus Logics, a digital customs brokerage and global trade management software company. Previously, he was a drector at Vision Capital Advisors LLC, a New York City based hedge fund, where he focused on principal investing in technology, logistics, and FinTech.