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By Mark Neville email
| bio Of course it makes great sense for an alert importer to maximize
its savings through duty planning and to examine whether sourcing
through one of those countries enjoying a free trade relationship
with the United States will work for it. But that same importer
must remember that a strategic program that takes advantage of a
free trade agreement (FTA) to lower duties is only as good as the
importer’s ability to prove eligibility for the FTA. Stated
otherwise, there is a direct proportionality between the efficacy
of a savings regime and the ability to withstand an auditor’s
demands for authentication.
But such a statement begs the question: What will the auditors
demand? While the actual level of what constitutes acceptable proof
may vary from one audit team to the next, experience tells us that
an importer is best prepared to expect an audit team that is skeptical
or even cynical about the process.
Some auditors insist on an across-the-board checklist approach
to proving eligibility. For these auditors, if they could theoretically
make use of certain kinds of documents, they will want to see them
in all cases. Such a “laundry list” approach usually
means that the importer is in for a very rough ride.
Some audit teams will insist on a level of cost accounting that
would be appropriate only for the most sophisticated company. Proof
of local origin may lie in the payroll roster of employees, time
sheets, pay stubs, shift records of production, purchase orders
and invoices for materials, parts or components, proofs of payment
for those materials, monthly utility bills, bills and records of
payment for local transportation, list of capital equipment at the
factory—all tied in to the imported articles on a model-specific,
and even production line-specific, basis. What is especially galling
is that the auditors seek nothing less than the level of detail
that would be expected in a constructed value case—and there
is a general recognition by customs valuation experts that constructed
value is rarely sought because the information is so hard to come
by.
No one could seriously argue that auditors do not have the authority
to examine eligibility issues thoroughly. An insistence by the auditors
on all of the foregoing types of documentation may be warranted
IF there is some basis for the origin of the goods being open to
some question. In such a case of questionable origin—for example,
there is no previous record of a local industry to make those products—the
“drill down” by the auditors would be justified. But
the problem is that some auditors will want to see these records
in every case and merely because they can. This procrustean insistence
should be resisted early and often.
What should an importer do if it is dealing with an audit team
that wants to make a “federal case” of the audit?
First off, as noted above, the savvy importer will have anticipated
and tried to gather as much of this documentation as possible—at
least on a sampled basis. The importer might build into its purchase
arrangement with the vendor a provision that the vendor will commit
itself to maintain some of these records and make them available
to the importer. Many vendors will be reluctant to provide such
information to the purchaser because it will reveal the vendor’s
costs as well as its profits.
One way to allay a vendor’s fear of being later squeezed
by its customer is for the customer to acknowledge that it recognizes
the sensitivity of the information. The customer must assure the
vendor that the information will either go to a third party advisor
and not come to the importer at all or, if it does go to the customer,
it will be strictly segregated.
In the latter case, the information would be used solely in communication
with Customs and will not migrate out of the department that is
in dialogue with Customs, usually the supply chain or the import/export
department. In short, this sensitive information will be walled
off and will not make its way to the purchasing department, merchandising,
the buyers or any others who will be negotiating prices with the
vendor.
If the audit team asks for the information and it is not readily
available—as is most often the case—the importer has
a stark, upfront choice. Either the importer can convince the audit
team to back down or the importer will begin what is usually a long,
drawn out game of “monkey in the middle,” with the importer
in the lead role.
The game goes like this: the importer will ask the vendor for information
and documents—putting its email, fax, and document scanners
as well as the express couriers on an overtime footing—and
then send follow-ups to the vendor when the importer realizes that
the vendor did not understand the request and/or when the auditors
either reject the information or ask for follow up. Sometimes the
importer’s buying agent gets to play as well.
This game can last many, many months and is guaranteed to eat up
lots of time and could account for some significant deforestation
besides. The game will end with the importer either satisfying Customs…or
not.
If the importer wants to sit out the game, then it must really
end the game before it begins. The importer must convince the auditors
to withdraw their own request or get someone else in Customs to
have the request withdrawn, especially if, as a matter of law, the
importer can make its case without delving into the minutiae that
the auditors are seeking. An especially frustrating fact of life
is that the importer might well be able to convince the import specialists
as well as other Customs officials at the port—up to and including
the Port Director—that the auditors’ request is overkill
and not wasteful of time for both the importer and Customs itself.
The frustration lies in the fact that the auditors really cannot
be headed off by anyone at the port. The importer in this position
must seek an Internal Advice (IA) from Customs Headquarters. The
IA tracks back to the “matter of law” basis for the
importer’s position. Unless the importer can get a hearing
on the legal standard being applied, the importer may well be left
with the nasty underside of the FTAs—convincing the auditors
that the entries were entitled to the benefits of the FTA.
By Tracy A. Smith email
| bio
Miriam-Webster’s Dictionary defines “metric”
as a standard of measurement. At first glance you might be
inclined to think it is difficult to apply metrics to international
trade compliance activities like you would to the number of
widgets produced or the number of trucks unloaded in a month.
However, not only can metrics be applied to trade compliance,
when applied effectively they can be used to help to drive
process efficiencies, provide visibility and promote the efforts
of the trade compliance group to the executive team and throughout
the entire organization.
Metrics should be used as a tool to help gauge a process
and help identify trends—positive or negative. The metrics
you choose should be measurable and add value. Think of all
of the activities the compliance group engages in daily. Work
through these tasks and further define the ones you feel will
provide you, the executive team, and your organization valuable
information.
The metrics you develop are tools to help you quickly assess
and communicate what is occurring in your daily compliance
activities. Do not spend time developing a metric that does
not add value or provide essential information. The goal is
not to have metrics for the sake of metrics.
Over time metrics can be an invaluable resource of information.
For example, right at your fingertips you will know exactly
how many entries the team handles per month, how the products
are coming in at each port, and the total entered value by
mode and by port.
By capturing and trending this information you are in position
to identify process gaps that may be affecting import-export
compliance. In addition, you may identify other possible inefficiencies
affecting the supply chain such as the influx of expedited
freight, which may be an indication of supplier fulfillment
problems or a higher percentage of entries requiring entry
documents or intensive exam at a certain port of entry.
You may wish to create import metrics that track the total
number of entries by method of transportation and by port;
the percent of entries that were entered paperless, EDR or
intensive; and the total entered value by mode and by port.
This information should be readily available from your broker
on a monthly basis and can be quickly and easily compiled
and graphed using Excel.
Export metrics could include the number of exports by country,
method of transportation, value, number of AES entries, transit
times, percentage of exports requiring an individual validated
export license, and export order processing times.
Once defined, metrics can be used to help support compliance
initiatives such as an importer self-assessment program and
drive efficiencies through continuous improvement. Additionally
they can be useful in validating the need for additional staff
and used to gauge the overall efficacy of the compliance organization.
Metrics can be an invaluable tool assisting in, addressing
and possibly averting potential supply chain disruptions.
Metrics can provide a wealth of valuable information to you
and your executive team while bringing visibility and awareness
to the critical nature of the activities performed by trade
compliance personnel.
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