Date: Wed, 31 Dec 1997 20:53:10 GMT Server: WebSitePro/1.1g (S/N WPO-2024) Accept-ranges: bytes Content-type: text/html Last-modified: Tue, 30 Apr 1996 16:50:34 GMT Content-length: 12317
By David Serko, Senior Partner, Serko & Simon and Contributing Editor, WWS/World Wide Shipping.
In response to the importing community's request that the Customs Service provide guidance with respect to the obligation to use "reasonable care," on January 22, 1996, Customs issued a Discussion Draft which includes a four part approach to providing this guidance. These approaches include the following: a) regulatory changes; b) position statements; c) hypothetical situational examples of what may or may not be considered acting with reasonable care; and d) a reasonable care checklist. Customs may decide, after reviewing comments from the Trade (the original comment period has been extended), to employ one or more of these approaches.
The Draft should be of great interest to both importers and brokers, since it attaches many of the obligations of the importer to the broker (even when not acting as importer of record) by virtue of the broker's role as agent for the importer. Most important among these obligations is the requirement that importers and their agents (brokers) familiarize themselves with the myriad of Customs notices, publications, directives, regulations, statutes, and judicial decisions as well as the terms of the particular import transactions.
Customs does not shy away from ascribing guilt to brokers who fail to provide adequate advice to importers relying on their expertise and even suggests that a broker may be penalized for the misclassification of merchandise based on the broker's advice.
The following is a summary of the Discussion Draft approaches which Customs offers as possible guidance. Customs indicates that it may employ all or just some of these approaches when a final draft is implemented.
Under the regulatory approach, Customs proposes to add to 19 CFR 141.0 the following heading: Obligation to use reasonable care; Scope of this part.
Pursuant to this new section of the Customs regulations, an importer of record must exercise reasonable care in making an entry by providing Customs with the necessary information, including the correct value, classification and duty rate of the merchandise, to enable Customs to determine whether it may release the merchandise and be able to properly assess duties, collect accurate statistics, etc.
In addition, the new regulation will require importers and their agents (brokers) to familiarize themselves with Customs regulations, administrative rulings, interpretations, publications, statutes, tariff schedules and judicial decisions which govern their import transactions. In addition, importers and their agents will be required to familiarize themselves with the terms of the transactions, as well as the description, use, composition, and origin of their merchandise. In certain cases, importers and their agents will also be expected to be familiar with the production steps involved in the manufacture of the merchandise.
Under the position statement approach, Customs enumerates a number of position statements which make up general guidelines or procedures to assist importers and their agents in meeting the standard of reasonable care.
The statements include the following:
Customs concludes its position statements with the categorical statement that: "As a matter of law, the failure to exercise reasonable care constitutes negligence under 19 U.S.C. 1592."
Under the checklist approach Customs poses 17 questions which will assist importers in developing their own unique compliance measurement plans and reasonable care programs.
These questions include the following (paraphrased);
Under the case approach, Customs provides seven case studies describing activities which may or may not constitute reasonable care.
In the first example, an importer, after receiving several improperly marked shipments, provides his supplier with explicit marking instructions for a new shipment. In addition, the importer contacts his broker with instructions to inspect the marking of the new shipment upon arrival and also advises Customs of the steps taken to ensure proper marking. Even though the shipment arrives incorrectly marked, and the broker fails to inspect, the importer is held to have acted with reasonable care under the circumstances. Although Customs does not indicate what actions would be taken against the broker in this situation, the importer in the example "feels his broker should be held accountable." This is a slightly confusing scenario, since a broker would not be permitted to inspect the merchandise until after entry. In addition, it seems to raise many practical concerns for the broker in terms of the added time and expense involved.
In the second example, an importing company supplies tooling assists to its supplier. The importer utilized the services of a broker to make entry, but, neglects to mention the tooling. Customs says that, under the circumstances, the company did not act with reasonable care, since it did not consult with another Customs expert (presumably one well versed in value law) and, did not provide complete information (the existence of tooling) to its broker.
In example three, the importer retains the services of a Customs broker to check the classification of its merchandise and, if possible, see if another classification (with a lower duty rate) would be applicable.
The broker erroneously misclassifies the merchandise. However, Customs finds, under the circumstances, that the importer exercised reasonable care by providing the broker with complete information from which to determine the correct classification. Customs goes further in the example discussion and postulates on the liability of the broker for giving erroneous classification advise. While Customs notes that in the example the broker did not gain financially from its action it nevertheless states that "the broker, not the importer may be subject to a penalty action."
The remaining examples deal with the importations of more experienced importers who are held to a higher degree of competence in ascertaining facts. In one such example, an importer failed to adequately ascertain the proper country of origin of merchandise exported from countries known in the industry as transshipment points. In another example, a large importing company failed to institute adequate interdepartmental procedures providing for the exchange of information between the various departments resulting in erroneous dutiable values of imported merchandise. In yet another example, an importer was found to have reasonably relied on the country of origin claims of its suppliers only after the importer had taken additional measures to ensure the accuracy of the origin claims (i.e., having an agent inspect the actual manufacturing facility).
From a review of Customs Discussion Draft, it appears that, in order to meet the reasonable care standard, an importer and its agent (broker), especially an experienced large importer, must become conversant in the rules, regulations, statutes, case law, etc., germane to their import transactions. Reliance on Customs experts, to a certain degree, relieves some of the burden on the importer, who, it is presumed, has sufficient knowledge of the Customs law and its development to be able to identify the information required to be presented to the broker, based upon which the broker may then render the proper advice. Nonetheless, the burden on the broker, who is relied on as a Customs "expert," has increased. Pursuant to Customs proposed Discussion Draft on Reasonable Care, erroneous advice may lead to penalties being assessed against the broker rendering the advice, regardless of the fact that the broker did not gain financially from the advice.
Importers and Brokers are strongly advised to review the full text of Customs Discussion Draft and to make their views known to Customs regarding this most important issue.
EMail: David Serko, Joel Simon, General Inquiries
All material copyright © 1996 by Serko & Simon
A. The Regulatory Approach
B. Position Statements
C. The Checklist Approach
D. The Case Approach
(The foregoing is not, nor is it intended to be construed as, legal advice,
which may only be provided to clients of the firm on a case by case basis.)