The US government published an executive order on 3 June, titled ‘Strengthening Customs Enforcement’, which significantly tightens the rules on importers of record (IoR) in the US.
This executive order further increases pressure on the imports of low-value shipments from outside the US by removing certain facilitations and placing tighter restrictions on registration and bonds.
Many of the changes affect IoRs and how their activities are carried out.
Importer of Record eligibility
IoRs will now be subject to additional requirements, including an as-yet-undetermined minimum level of tangible US-based assets, lodged bonds or a combination of the two, in order to continue to hold their IoR registration.
Depending on the minimum level chosen, this is unlikely to significantly impact US-based IoRs, who will have US-based assets. However, the US allows non-US entities to register as ‘foreign IoRs’. This new rule is likely to significantly impact this group, as foreign IoRs are not likely to have sufficient values of assets or bonds in place.
Additionally, IoRs will now have to provide US Customs and Border Protection (CBP) with additional data including (but not limited to) anticipated import volumes, ownership and business affiliation disclosures, and domestic asset disclosures in order to register as an IoR.
Again, while this is not especially onerous for a US-based business who will likely have this information to hand as part of their regular business operations, it may be more challenging for a foreign IoR.
Foreign IOR informal entry prohibition
Foreign IoRs have been more directly addressed by a prohibition on the use of “informal entry”.
Informal Entry is a simplified declaration type – in some ways similar to an oral declaration in the UK – which can be used for shipments of a value below US$2,500.
The reasoning given in the executive order for this restriction is that foreign IoRs have used informal entry to import high volumes of low value goods, and although foreign IoRs are generally less familiar with US customs law, the financial consequences for non-compliance are lower on a per shipment basis.
Due to the difficulties in prosecuting and penalising foreign IoRs, the executive order deems this use of informal entry a threat to national security, and bans which is the justification for its prohibition.
Foreign IoR Bond restrictions
Now, every IoR in the US must lodge a non-refundable bond with CBP to make a customs declaration. There are two types of these:
- A single entry bond which usually costs around 0.5% of the value of a shipment
- A continuous bond which usually costs 10% of the value of all duty in a year
Typically, this will mean that for an IoR that imports a high volume of low value shipments, a continuous bond will be significantly cheaper than using single-entry bonds.
Under this new regime, foreign IoRs are further prohibited from using a continuous bond unless they can prove that CBP revenue would be protected, and that the foreign IoR is validated with the Customs-Trade Pact Against Terrorism (CTPAT) or uses a CTPAT validated and licensed customs broker to file their entries.
‘Good Standing’ with CBP
All IoRs will also be required to maintain ‘good standing’ with CBP. ‘Good Standing’ has yet to be defined by CBP but the executive order does give some indications that it will include the IoR’s (and any affiliates’) history of customs compliance and payment of customs liabilities.
Another example given is that any IoR found to have imported illicit substances or their precursor chemicals will not be in good standing with CBP. Not being in good standing with CBP will result in businesses being unable to import into the US or to carry out activities related to importation, such as designating a broker to import goods on their behalf.
Increased vetting and compliance for IoRs
The executive order obliges CBP to update their registry to remove inactive IoRs, make sure active IoRs are compliant with regulations and disclosures, and create a risk-based tiering structure based on “compliance history, enforcement actions, and audit results, among other things”.
Vetting procedures will also be introduced for a range of actors involved in the import of goods, including foreign IORs, affiliates of IORs, customs brokers, custodians of bonded merchandise, and freight forwarders.
As with the other aspects of this executive order, the requirements for CBP to carry out this level of checking and vetting of supply chain actors looks to be part of an effort to make importing large quantities of low value packages less economically viable and more onerous, particularly for foreign IoRs.
Import disclosure and certification
The executive order introduces further requirements to heighten supply chain compliance, notably including the requirements to disclose “certain foreign tax and global business identifiers”, and to provide detailed information about the supply chain for imported goods, including manufacturer’s product identifiers or product specifications.
While this second requirement is likely covered by the upcoming introduction of eFiling for product safety purposes, providing tax and business identifiers appears to be a new requirement.
Export paperwork submission
The executive order also adds a requirement to submit the “documentation or information that the foreign exporter was required to submit to the foreign customs administration prior to exporting to the US.” This would presumably include the export declaration.
Given the executive order’s aim to crack down on foreign IoRs, this appears to be designed to ensure that the goods have been declared for import in a way that agrees with the details they provided on export – ensuring that the goods are not-misdeclared in the US to avoid duties or other controls.
Enforcement, penalties and disposal
The executive order also requires CBP to maximise the existing penalties for customs non-compliance. This includes enforcement of regulations involving products produced with forced labour, which is likely related to the recently released report into a section 301 investigation into these practices.
CBP will need to ensure that penalties assessed on non-compliant traders are at minimum of 50% of the maximum penalty, with mitigations removed for repeat offenders.
Additionally, CBP will need to establish a minimum liquidated damages floor. Liquidated damages are a monetary assessment made by CBP for the breach of the conditions of an IoR’s import bond. By providing a minimum figure. CBP will make any compliance breaches involving low value shipments proportionally more expensive compared to a breach on a higher value shipment, again targeting traders importing a high volume of low value shipments.
The final operative measure in the executive order requires CBP to streamline the seizure and disposal of non-compliant goods, and eliminate any administrative hurdles for the voluntary abandonment process.
This measure also seems to be focused on low value shipments, where reducing the administrative burden for single shipments would pay a large dividend.