We often field questions regarding the cost of compliance from importers. There is a misnomer that acting in compliance with Customs regulations is an expensive alternative to the status quo.
"We've been doing it this way for years with no issue," or, "I have never had any problems or heard of anyone who has," and, "Customs is looking for criminals, not paperwork errors" are common phrases we hear.
Compliance is seen by some businesses as having few financial benefits. With this view, trade compliance can be considered an unnecessary expense or in some cases, a bridge too far financially. But is compliance expensive?
As a compliance focused customs broker, we admittedly have a biased view on this topic: compliance is key. However, this view is not without merit. Working with both importers and Customs makes us privy to stories of delay, penalty, audit and in extreme cases, loss of importing privileges. We have seen all too frequently the impact these ramifications have on companies of all sizes and want to ensure our clients mitigate these risks.
To further expand on this, let us take a look at what makes a company compliant with trade regulations.
Areas of Compliance
Some of the standards that are expected of importers and their trade transactions include:
- Accurate valuation of all imported items
- Accurate application of the Harmonized Tariff Schedule
- Accurate utilization of duty rates, including preferential claims to free trade agreements
- Accurate marking of imported items
- Knowledgeable logistics team who both understands and remains current with importing and exporting regulations
- Staying apprised of the many potential antidumping and/or countervailing duty cases that may be applicable to an imported product
- Correct and complete documentation
Now that we understand the primary principles of what makes a importer compliant, let us take a look at the associated costs.
Costs of Compliance
Compliance costs can be internal, in the case of your in-house logistics or customs department conducting the work, or external when the work is contracted out to advisors such as our Trade Advisory Team. These costs vary greatly from company to company as each has their own internal costs and risks of non-compliance. Additional variants are based on the number of imported items within your company's database, origin of sourced materials, complexity of the finished product and the time and resources required to accurately classify it. A compliance audit will highlight areas of concern and provide costs and time frames required to ensure that a company is in compliance with all of the pertinent regulations and processes.
Contact our Trade Advisory Team to assess your company's compliance. We can address specific areas of concern or conduct an all encompassing audit.
Costs of Non-Compliance
The compliance costs described above are typically realized upfront. However, costs associated with non-compliance are realized throughout a company's importing lifespan such as:
- Overpaying or underpaying duty
- Unintentional evasion of duties and other potential fees
- Unintentional smuggling of commodities
- Administrative Monetary Penalty System (AMPS) penalties which range from X - X for the first offense and increase for successive offensive of the same nature per instance.
Other costs such as loss of importing privileges or obtaining a flawed record with Customs can have ongoing impacts on a company's bottom line. The costs of non-compliance are too great to gamble with.
Is My Company Compliant?
In evaluating your company's compliance with trade regulations ask yourself the following questions; and if you are unsure of any of the answers, you may wish to reconsider your compliance program and practices.
- Does my procurement team fully understand international terms of sales (Incoterms®) and the many advantageous terms to use and how to avoid admissibility issues?
- Where did my logistics staff learn how to fill out trade related documents? If not my logistics team, who fills out these documents and who audits them to ensure accuracy?
- When was the last time the logistics staff attended refresher courses on trade regulations? How do I ensure that my staff knows what to watch out for? Who audits the Customs Broker's work?
- How do we obtain regulatory updates related to the commodities we import? How are these updates implemented? Are we staying up to date with Customs publications?
- Who is our contact person on file with Customs and are they aware of what to do with the correspondence?
- Who valued, classified and labeled my imported items? Who maintains and updates this database? How did I ensure these activities were completed in compliance with the pertinent regulations? Do we have a written record of the work that was done, by whom, dated, and basis for the determinations made?
- How are my customs documents filed and for how long? Are they filed in accordance with Customs specifications?
Yes, compliance with regulatory requirements is definitely an expense that all importers must contend with. However, in comparison with the much higher costs of non-compliance, it is a total bargain.
Being protective of your company's bottom line is a vital business practice. However, the bottom line is trumped by Customs drawing the line. Do not let your trade practice reach a point where your business is negatively impacted. Educate your logistics team as the first step towards trade compliance.