A Promising Step

December 15, 1999

15 December 1999

A Promising Step

The following article is excerpted from "The Journal of Commerce" edition of 15 December 1999.

The U.S. Customs Service, responding to intense efforts by importers, is moving to make its compliance-audit process less arbitrary and more reasonable. The move isn't the last the agency should make in that direction. But it's a positive step that should improve matters for importers and, ultimately, Customs itself.

The issue is part of a larger beef the import community has with Customs. The community bought into a deal in 1993 that was supposed to benefit it and the agency. But so far Customs has reaped the benefits and the importers have had the headaches.

Under the Customs Modernization Act, known as the Mod Act, importers essentially took responsibility for correctly valuing and classifying the goods they bring into the country. In return, they were to get simpler, less costly, more user-friendly dealings with Customs. The agency, for its part, was to be able to improve its enforcement of the nation's complex trade laws.

Importers have yet to get what they were promised. That's because most of their benefits depend on Customs replacing its antiquated computer system, which teeters daily on the edge of breakdown, with a modern, more sophisticated system. Unfortunately, the Clinton administration doesn't want to come up with the $1.2 billion the new system is expected to cost over a four-year period ...

Meanwhile, however, Customs has increased its enforcement activities with unabashed zeal. It has put nearly 250 companies through the compliance assessment process it set up in 1996, audits in which teams of agency specialists comb a company's records to make sure it is properly classifying imports and paying the duties it owes on them. The idea, of course, is to catch cheaters. But the law-abiding suffer, too.

The audits themselves are burdensome, with some lasting as long as two years and costing a company more than $2 million. The standards are high and rigid. And, like a white-glove inspection at a recruit training depot, the process offers those who undergo it little margin for error and no mercy. It takes little in the way of technical or statistical error and nothing in the way of criminal intent for a company to be consigned to a higher risk category, thus guaranteeing that it will get many more inspections of its cargo and further audits.

Given the gulf between what's happening and what was supposed to happen, it's easy to understand importers' anger. It's also easy to understand their accusations that Customs takes an ivory-tower approach to the business world, concentrating intently on its enforcement duties while isolating itself from trade and technological reality.

Customs took steps to ease the situation over the summer. It issued new guidelines that cut the length of time the audits are supposed to take and halved the size of the sample of shipments that auditors review.

But importers say the steps backfired, actually reducing the margin for error they are allowed. They pressed for realistic and meaningful reforms.

What they just got should help. Customs unveiled a proposal — which it said it wants to implement as soon as possible — that would do several things. It would increase the number of errors an importer can make before failing an audit. It would allow a somewhat greater margin for error in classification. It would give importers a grace period to implement an improvement plan before downgrading their risk rating. It would also add two new risk categories.

Currently, importers are put into one of three groups: low risk, moderate risk and high risk, with the number of cargo inspections increasing exponentially as the risk gets higher. Customs proposes revamping the scheme to provide five risk categories: minimal, low, standard, moderate and high. Those who qualify for the lowest-risk category will get special benefits, but they won't be the only beneficiaries. Customs figures the new scheme will improve the position of 40%


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Canadian Economy & Politics
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