For companies importing products into America, US Customs and Border Protection (CBP) has established detailed requirements that must be followed. But at the heart of these compliance details is a very simple idea. You need to know your business partners.
CBP wants evidence of exactly where the products were made, an ability to trace products back to component materials, a manufacturing process that meets established legal standards (e.g., no forced labor), and a safe, secure shipping process. The Importer of Record (IOR) also needs to clearly and accurately state the type and value of products being imported.
To help you ensure compliance with your obligations, here’s a brief primer on Importer of Record responsibilities.
What is an Importer of Record (IOR)?
The Importer of Record is the entity or individual responsible for compliance with all laws and regulations that apply to imports into the US.
What’s the downside of non-compliance?
You risk CBP audits, fines, penalties and, in extreme cases, a loss of importing privileges. While rare, import bans do occur. For example, the CBP banned US imports from Malaysia’s Top Glove Corporation, the world’s largest glove manufacturer, when it found evidence that products were being made by forced labor. This was a huge financial hit to the company since the US accounts for nearly one-quarter of its approximately $1 billion (USD) in global sales. The import ban was lifted in September 2021 when the company provided clear evidence that it had addressed CBP concerns.
How frequent are CBP questions and audits?
There is no set timetable or average. If your company’s imports fall under one of CBP’s Priority Trade Issues (like apparel, anti-dumping, trade agreements, etc.), or if you’ve had a recent surge in import activity, you should be prepared for CBP outreach. While enforcement activity slowed during the height of the pandemic, CBP activities have ramped up again and, during its recent Virtual Trade Week, CBP confirmed a renewed focus on enforcement. The US Congress often measures CBP’s success based on enforcement actions, so the agency is incented to continuously enhance oversight activities.
What does an IOR need in order to import into the US?
IOR responsibilities include providing your company’s Importer of Record number, which is either your IRS business registration number or, if your business is not registered with the IRS or you do not have a business, your social security number. You may also request a CBP assigned number by completing a CBP Form 5106.
While a customs broker is not required to clear goods imported into the US, the complexity of the process and regulatory obligations make using such an expert a smart investment. When using a customs broker, you must sign a Customs Power of Attorney, authorizing the broker to act on your behalf.
All commercial shipment clearances in the US require a customs bond, which can be posted for a single entry or for multiple transactions throughout the year (continuous bond).
CBP does not require an importer to have a license or permit, but other Partner Government Agencies (PGAs), like US Fish and Wildlife or the Food and Drug Administration, may require a permit, license, or other registration, depending on the commodity you are importing. CBP usually acts in an administrative capacity and gathers information for these other agencies.
Can foreign entities import into the US even if they do not have a US presence?
Yes. Customs brokers can help foreign companies secure a Customs-assigned Importer of Record number by gathering basic paperwork and ensuring the company has an assigned domestic address. In fact, many Dimerco customers are Chinese companies that don’t have a US presence and want to act as their own IOR. They can manufacture products in China, ship them to the US, store them in a local distribution center and then sell to the end consumer – all without being an official US corporation. (NOTE: While a business doesn’t need an official US entity for CBP import purposes, federal, state or local laws may require otherwise). All shipments into the US need to have an ultimate consignee – either an individual or a US company – that gets reported to CBP.
What are Importer of Record responsibilities?
In 1993, the Customs Modernization Act introduced the concept of “reasonable care.” It requires IORs to enter, classify and determine the value of imported merchandise, and to provide other information necessary to enable CBP to properly assess duties, collect accurate statistics and determine whether all legal obligations have been met. A customs broker or other expert can help with this process, but the Importer of Record owns the ultimate responsibility.
What practical steps can I take to demonstrate reasonable care?
It comes down to implementing a documented Customs Compliance Program at your company – comprehensive processes and procedures that ensure your company meets the reasonable care standard. Here are some examples of items that should be included in your compliance program:
- Clear record-keeping processes. CBP requires specific records be kept for five years. If they ask for paperwork regarding specific imports, the agency will usually give you at least 30 days to provide it. Common records sought are international shipping documents like a bill of lading, an airway bill, a commercial invoice, a packing list or a customs entry summary.
- Procedures to ensure proper classification (HS CODES) and valuation. For more on this, see our primer on global trade compliance.
- Procedures to ensure proper country of origin declaration. This must be declared to CBP and marked on your products.
- Processes to monitor and comply with CBP’s Priority Trade Issues. These include import safety, intellectual property rights enforcement, and forced labor.
- Procedures to assure merchandise moving into the US under your IOR is kept secure while in transit. This includes making proper and timely Importer Security Filings.
What is a frequent problem area when it comes to customs compliance?
Recordkeeping is often a stumbling block. For instance, a metals importer was recently penalized $10,000 because it could not produce paperwork for several specific imports. To avoid such situations, develop a system to create and clearly organize electronic files. Even today, many importers are still buying boxes and file folders and creating a folder for every entry. Suggestion: scan in a full set of entry records and save them in your computer system by customs entry number and purchase order number. Your process should allow you to cross reference entries to purchase orders so you can also track import transactions through your financial system. NOTE: CBP requires importers to maintain their own records. A customs broker can not fulfill this role.
Why is Importer of Record compliance important to my company?
Bottom line: there’s lots at stake.
If you don’t follow clearly established Importer of Record responsibilities, you risk fines, penalties, delays, damage to your brand and, ultimately, the inability to service your customers.
Importing into the US requires detailed knowledge of compliance requirements. If you don’t have the staff to give this issue the attention it deserves, then hire an expert for international customs brokerage and compliance to ensure you meet the legally required reasonable care standard. Such experts can help you avoid fines, time-consuming audits, and business disruptions.
In the end, the most valuable benefit to having a trusted compliance expert on your side could be, quite simply, a good night’s sleep.