If you’ve spent any time in trade compliance, you’ve probably come across the term “reasonable care.” But what, exactly, does that mean? The ambiguous nature of this phrase has caused many different interpretations over the years. Let’s review some practical ways to apply this principle to your global trade compliance program.
The idea of “reasonable care” grew out of the 1993 Customs Modernization Act (lovingly called the “Mod Act”), which amended many sections of the Tariff Act of 1930. The new Act changed the course of the relationship between Customs and the trade community by placing much of the onus of being compliant on the Importer of Record (IOR).
With this new Act came new terminology – specifically “informed compliance” and “shared responsibility.” The basis of these concepts was to encourage the trade community to understand their legal obligations clearly and completely (i.e., to classify and determine the value of imported products, while providing Customs any necessary information to assess duties, collect accurate statistics and determine whether there are any other applicable legal requirements). Customs would also work to assist importers in their responsibility by providing more guidance to the trade community.
While specific roles and responsibilities were developed for the IORs and U.S. Customs and Border Protection (CBP), the idea of “Reasonable Care” should expand into a company’s trade compliance program; regardless of whether we’re talking about exports or imports.
Here are a few ways that your export and import compliance programs should converge on this idea of “reasonable care”:
- Procedures: Both programs must have specific procedures that address how products are exported to your customers or imported from your suppliers.
- Classification: Your programs will require some level of classification for products, whether you are reviewing for an applicable Export Control Classification Number (ECCN), United States Munitions List (USML) category/sub-category, or a Harmonized Tariff System (HTS) Code.
- Both classification processes should have mechanisms to help if you are unable to self-classify an item. For example, with exports, you’ll have a Commodity Jurisdiction (CJ) through the Directorate of Defense Trade Controls (DDTC) and/or the Bureau of Industry and Security’s (BIS) Commodity Classification Automated Tracking System (CCATS). For imports, it might be the Binding Ruling procedure through U.S. Customs that will help you obtain the correct HTS code based on your description of the item (or items) in question.
- Valuation: Customs expects both exporters and importers to provide accurate value information concerning the items they are selling or buying. How are your reported values determined? Where is the information stored? Who maintains it? How often is it reviewed and updated?
- Country of Origin: Both exporters and importers are responsible to understand the Country of Origin of the items they purchase or sell. Importers must report the Country of Origin of all items at the time of entry into the Customs territory of the United States. Exporters also must supply a Country of Origin to their international customers so their customers may properly report this information to their regulatory agencies.
- Free Trade Agreements (FTA): Exporters and Importers must understand whether or not the items they sell or import qualify to meet the requirements of an FTA. Some common ones include NAFTA, KORUS and CAFTA.
- Denied Party Screenings: Both exporters and importers should review Denied Party Listings to ensure a customer or a supplier has not been placed on one of the governmental lists that could impact a shipment.
- Recordkeeping: Both exporters and importers are required by the government agencies to maintain records. Utilizing checklists to ensure you have obtained/retained all the necessary documents for shipments helps to meet the regulations.
Using the concept of “Reasonable Care” throughout your company’s Trade Compliance Program will help you have a more robust methodology of meeting all the government’s requirements – thereby being compliant with your export and import transactions.
Beverly Demma is a Sr. Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.