What Every Multinational Should Know About … Conducting a Customs Compliance and Tariff-Risk Self-Check

As detailed in Part I of this risk-assessment self-check series, we are publishing a series of self-check assessment guides covering the key regulatory and contractual risk areas for multinational companies. This article provides Part VI, which is a self-check assessment for conducting a customs compliance and tariff-risk review. Previous self-check risks assessments are found Part I (general compliance), Part II (buy-side contracts review), Part III (sell-side contracts review), and Part IV (supply chain integrity compliance self-check), and Part V (antiboycott self-check).

Import compliance failures rarely stem from a single dramatic error. More often, they encompass a series of errors, such as legacy assumptions about country of origin, stale tariff classifications, failure to track assists, or failure to keep up with changing manufacturing locations. In the current high-tariff, high-enforcement, high-penalty environment, where tariff rules can change daily, recurring issues can quickly add up and translate into large potential underpayments and penalties.

To help importers deal with their sharply increased tariff risk exposure, we are providing a checklist that importers can use to assess whether their import operations use the types of procedures that Customs and Border Protection (CBP) expects. A “no” answer does not necessarily mean noncompliance, but it likely should be treated as a red flag that warrants deeper review.

I.          Country of Origin

• Does your company determine country of origin using the correct legal test for each product (e.g., substantial transformation vs. tariff-shift rules that might apply under free trade agreements)?
• Does your company analyze the country of origin rather than just rely on supplier statements or country of origin declarations on commercial invoices?
• Does your company revalidate the country of origin after: (1) changes in manufacturing location; (2) changes in component sourcing; (3) process shifts intended to mitigate tariffs?
• Does your company track multiple origins for similar Stock Keeping Units (SKUs) produced in different facilities?

II.         Tariff Classification (Harmonized Tariff Schedule (HTS) of the United States (HTSUS))

• Does your company maintain and regularly update a Customs Classification Index and share it with your Customs brokers?
• Does your company support tariff classifications with written analysis, rulings, or reasonable care memoranda, and incorporate such backup analysis within its Customs Classification Index?
• Does your company regularly review classifications following: (1) product redesigns or (2) the addition of new models or features?
• Does your company regularly review classifications to determine how they are impacted by: (1) changes to tariff regimes; (2) changes in Section 232 steel/aluminum derivatives; or (3) eligibility for United States-Mexico-Canada Agreement (USMCA) exemptions?

III.        Customs Valuation

• Does your company have a process to ensure that declared value is based upon the correct commercial price, including all mandatory additions to value and allowable deductions?
• Does your company have a system for properly tracking and attributing assists such as tooling, molds, and dies?
• Are rebates, post-import price adjustments, or transfer-pricing true-ups handled in a CBP-compliant manner?
• If your company uses first-sale valuation, does it maintain full evidence that all requirements of the doctrine are documented?
• If your company purchases goods from an affiliate, has your organization completed a transfer pricing study that meets Customs (and not IRS) transfer pricing requirements?
• Does your company have an accurate way of determining the steel, aluminum, or copper content and its value for any Section 232 derivative products?

IV.        Preferential Trade Programs (e.g., USMCA)

• Has your company done a systematic study to evaluate which products properly can claim preferential duty status and documented the supporting rationales?
• Does your company revisit origin determinations when: (1) suppliers change; (2) bills of materials change; or (3) production locations shift?
• Does your organization revisit regional value content (RVC) calculations to ensure they are up to date?
• Does your company perform checks to ensure that it has a certificate of manufacture always available at the time of importation?
• Do you have procedures to ensure that suppliers are providing accurate information to support country-of-origin declarations?

V.         Antidumping & Countervailing Duties (AD/CVD)

• Is there a formal screening process to flag potential HTS codes for matches to existing antidumping and countervailing duty orders and then to follow up on potential matches to see if the products fall within the written scope of the potential order?
• Are suppliers vetted for: (1) country-of-origin accuracy; (2) risk of transshipment; (3) minor processing in third countries being used as a justification for an incorrect country of origin?
• Is there a process for ongoing monitoring of new AD/CVD cases to determine potential coverage of your company’s imported products?

VI.        Broker Oversight & CBP Requests

• Is there active oversight of customs brokers, including periodic entry reviews?
• Are broker instructions updated and centralized, rather than informal or ad hoc?
• Is someone in your company signed up for ACE Access and set up to receive Form 28 Requests for Information, Form 29 Notices of Action, and other CBP communications rather than relying on Customs brokers to provide such information?
• Does your company have procedures to apply the results of any Form 28s or Form 29s to all unliquidated entries?

VIII.      Corrections, Disclosures & Governance

• Does your company use post-entry checks to find and fix any errors before liquidation?
• Does your company have a defined process for handling: (1) post-Summary Corrections (PSCs); (2) protests; and (3) prior disclosures
• Is senior management periodically briefed on tariff exposure and compliance risk?

If you would like help analyzing the results of your compliance self-check, please reach out to the authors or your Foley relationship attorney.

Would you like more practical compliance tips like these? The Foley International Trade & National Security Team is monitoring all international trade, enforcement, and compliance developments, which we post as they occur on our Tariff & International Trade Resources blog. Click Here To Register for our email list to receive future emails and practical international regulatory compliance tips, including our weekly Tariff-ied! This Week in International Trade and What Every Multinational Should Know articles.

Our white paper on Managing Import and Tariff Risks During a Trade War outlines a 12-step plan to provide practical steps to help importers navigate the tariff and international trade risks in the current tariff and trade environment, while the companion white paper on Managing Supply Chain Integrity Risks provides practical advice to deal with heightened supply chain risks pertaining to goods imported into the United States, including the increasing use of detentions by Customs.