One of the hallmarks of an importer’s relationship with Customs and Border Protection is reasonable care. In its simplest terms, this means the importer has taken all reasonable steps to ensure the classification and value of his goods are stated accurately at time of entry, and to the extent those goods are subject to any admissibility requirements, they are met.
For example, if you import food, you meet the Food and Drug Administration requirements, and if you import toys, any Consumer Product Safety Commission requirements are satisfied prior to entry. Country of origin applies to all goods. The typical relationship between importer and customs broker consists of the importer relying on the broker to guide him or her through the process.
A notice of noncompliance comes as a major shock to most importers. Unless an importer has a written agreement in which the broker agrees to shoulder legal compliances, a valid defense does not include the statement, “My broker did it!”
The corresponding requirement placed on customs brokers is responsible supervision and control. The legal definition can be found at 19 C.F.R. 111.1.
While the legal obligation of the importer carries with it a short definition, the legal obligation of the broker is far less concise. But it’s clear that simply taking a classification from an importer and using it, without checking further, does not meet the standard. Similarly, allowing untrained clerks to guess at classification, not auditing files to ensure compliance, failing to advise importers about shortcomings with their documents, and so on, also fall below the expected standard of care.
Why raise this now? In the last two months, we have seen significant penalties issued to importers who naively relied on their customs brokers to classify their goods correctly, only to find out how wrong they were. The corporate entities involved — two quite different but prominent brokerage operations — had no controls in place to make sure staff was making entry properly. In one case, during the course of the events about which Customs complained, the broker had three license holders, not one of whom picked up on how inept the clerk was, even after CBP Forms 28 and 29 were issued. The importers share some of the blame because they often neglect their homework and instead assume the broker must know what it’s doing. Nothing could be further from the truth.
Similarly, exporters, often small and medium-sized companies, rely on their forwarders to be familiar with the rules and guide them through the process. The Bureau of Industry and Security’s guidance for compliance and enforcement related to freight forwarders states: “Agents are responsible for the representations they make in filing export data. Moreover, no person, including an agent, may proceed with any transaction knowing that a violation of the EAR (Export Administration Regulations) has, is about to, or is intended to occur. It is the agent’s responsibility to understand its obligations.”
The State Department pretty much ignores forwarders until something goes wrong, and then views them suspiciously. The bottom line: It’s not a valid excuse to say “my forwarder didn’t do his job” if a license was required and you failed to get one, for the same reasons an importer can’t shield himself from liability if his broker messes up. From the forwarding side, interestingly, other than with a routed transaction, the exporter remains liable in all circumstances.
Whether an exporter dealing with a forwarder or an importer dealing with a customs broker, it’s important for international traders to do their homework. In the regulators’ view, importers and exporters are the principals and are responsible if their agents mess up. Consider the ramifications when you have a multimillion-dollar penalty in your hands, rail against your service provider only to discover you agreed to terms and conditions of service that severely limit what you can recover. Worse, those terms and conditions vary by circumstance.
For example, if your service provider also acts as an air forwarder, for the most part, your recovery will be limited to $9.07 per kilo or $20 per pound under the Warsaw Convention, which governs carriage of goods by air. On the ocean, the operative agreement is the Carriage of Goods by the Sea Act, which limits liability to $500 per package, although that could change if the Rotterdam Rules are ever adopted.
Sure, you might say the forwarder also prepared the documents and that’s where he messed up. That may be true, but from a legal perspective, it could be argued he was preparing those documents as part of his transportation-related services. And even if his argument fails, be careful: Most forwarders and customs brokers have separate terms and conditions of service with limits of $50 or $100 per shipment.
If you’re a halfway experienced international trader, at this point, you’re noting those terms and conditions are in fine print on the back of the document. Again, you’d be correct, but that doesn’t make them any less binding. It’s common practice, after all, for the backs of transportation-related documents to be used to convey terms and conditions, even if the fine print is really small. Have you read an ocean bill of lading lately?
The export enforcers also are vigilant about you not being able to “self-blind.” That is, if you’re in a transaction that has red flags, you can’t ignore them. In the context of the relationship with a service provider, frankly that philosophy doesn’t go far enough. Here’s the truth: You can no longer decide who your business partners are based strictly on cost. You must look at the big picture and do your due diligence to discover whether the service provider is blowing smoke or really knows what he or she is doing. This applies to your suppliers and customers as well. Business has gotten much more complicated, whether from the regulatory or commercial perspective.
Thorough homework is a must, and by all means keep your records on what you’ve done. It could save your company lots of money in the end.
Susan Kohn Ross is an international trade attorney with Mitchell Silberberg & Knupp in Los Angeles. Contact her at firstname.lastname@example.org.