U.S. Importing and Exporting Basics Guide

If there’s anything consistent about trade regulations, it’s that you must stay up to date on any changes that might affect your organisation. Understanding the basics of trade compliance can make it easier to comply with updates, changes and additions to trade laws.

What you need to know about import trade compliance

What is reasonable care?

Essentially, reasonable care is made up of the actions taken by an importer of record. U.S. Customs expects importers of record to take responsibility for their actions and demonstrate that those actions are reasonable.

Reasonable care helps U.S. Customs accurately assess duties, collect accurate trade statistics and determine admissibility of goods into the country.

To demonstrate reasonable care, importers of record must make timely entries with U.S. Customs and ensure that they complete entries with the correct declared value, classification and rate of duty.

The most common ways to demonstrate reasonable care include:

Following regulations
Entering merchandise correctly
Knowing the terms of transactions
Detecting and reporting violations
Providing experts with material facts and circumstances
Knowing the description, use, composition and origin of merchandise
Establishing ongoing procedures and policies to maintain compliance

What is due diligence?

Whereas reasonable care reflects the actions of importers, due diligence refers to the obligations of customs brokers. Due diligence extends to financial settlements, answering correspondence and preparing or assisting in the filing of records related to any customs business matter.

Many importers engage a licensed customs broker when importing. However, there is often the misconception that this engagement alleviate a company’s requirement to act with reasonable care. This is simply not true.

Using a customs broker to complete entries is only meant to assist with, not remove, an importer of record’s obligations.

What is informed compliance?

If reasonable care and due diligence are the responsibility of importers and customs brokers, informed compliance is the responsibility of U.S. Customs to educate the industry on regulations and policies.

The government agency has multiple ways to provide this information, including:

Federal register
Customs bulletins
Outreach programmes
Binding ruling programme
Customs and border protection (CBP) website

What you need to know about export trade compliance

What is an export?

An export is an actual delivery or transmission of items out of the United States or the release of software or technology to a foreign national within the United States. Items can be a commodity or physical good, but also include more incorporeal items like software, diagrams and technical data.

By this definition, depending on the nature of the content, an email may be considered an export that requires a licence to send—depending on the contents of the email and the status and/or location of the recipient.

Depending on the facts and circumstances, these types of scenarios should be viewed closely:

Employment of foreign nationals
Foreign installation and maintenance
Visits to one’s company by foreign nationals
Hand carries (engineer’s laptops or drawings)
Actual delivery or transfer of physical, tangible items
Electronic (email) or telephonic (facsimile) data transmissions

Who regulates exports in the United States?

Several federal agencies govern exports in the United States for either the “control” or procedural” piece. Depending on your commodity type, you may need to follow regulations from more than one agency.

The most common agencies involved in exports include the U.S. Commerce Department, U.S. Foreign Office and U.S. Treasury Department.

Common export regulations associated with these departments include:

Foreign Trade Regulations (FTR)
Export Administration Regulations (EAR)
International Traffic in Arms Regulations (ITAR)

Five questions that govern every export transaction

Successfully maintaining compliance with export laws requires you to accurately declare the following information for every export transaction. The answers to these questions will affect the export process of your items.

What is the item being exported?
Where is the item going?
Who will use the item?
Why do they want the item?
What other functions/activities do they perform?

Avoiding penalties associated with importing and exporting

The cost of noncompliance can be expensive. When it comes to importing and exporting, use common sense. If something feels off about a transaction, stop and investigate. The potential consequences of proceeding in error can be extremely high.

Import penalties

The penalty provisions for imports is based on whether U.S. Customs suffered a loss of revenue or alternatively penalties could also be accessed even when U.S. Customs did not suffer a loss of revenue. From there, the penalties are further broken down into negligence, gross negligence and fraud violations.

For example, an organisation misclassified an item. Due to the misclassification, it used an incorrect duty rate of 0%. The correct classification carries an actual duty rate of 6%. Depending on the facts, the company could be charged with gross negligence; the penalty could be 2.5-4 times the 6% duty rate. Or if it was deemed a non-revenue violation, the organisation could be charged 25-40% the value of goods. As you might imagine, the charges can quickly add up.

Export penalties

It is a privilege not a right to export from the United States. Incorrectly following export procedures can lead to large expenses, loss of export privileges and even prison time for criminal penalties.

Violations of the EAR carry both civil and criminal penalties. An exporter can face up to $13,508 per violation for civil penalties. If the incident involves national security, an exporter can be charged $353,534 per violation or twice the value of the transaction. Civil penalties also include the denial of export privileges for up to five years and the preclusion of practice.

There are also criminal penalties for individuals who knowingly violate EAR. An exporter who knowingly violates the EAR will receive a penalty of five times the value of the delivery or $50,000, whichever is greater and/or up to five years in prison. Someone who willfully violates the EAR will face a penalty of five times the value of the delivery or $1 million, whichever is greater and/or up to ten years in prison.

In addition to control penalties assessed under the EAR, it is more than likely your electronic export information (EEI) was also incorrect, which will result in penalties under the FTR. Like EAR violations, these come with both civil and criminal penalties.

Civil penalties include fines for each day where EEI was supposed to be filed but was not or was delinquent. The civil penalty charges $1,643 per day for late filing violations, not to exceed $16,438. Criminal penalties occur when someone knowingly fails to file or knowingly files false or fraudulent information. Then there will be a charge of $16,438 per violation and/or five years in prison.

While prison time might seem like the most serious consequence here, consider that the loss of export privileges may last for three to five years, which may cause the company to go out of business. Prison time certainly affects an individual’s life, but loss of export privileges can mean everyone at a company is affected.

Wrapping it up

Even your best efforts to stay in compliance with import and export regulations can fail for many reasons, so it is essential you review your trade processes on a regular basis. When errors are identified, address them and work to prevent them in the future. Making sure you are compliant helps your organisation avoid penalties and negative public exposure.

For more detailed information about trade compliance, check out our webinars:

Still have questions? Work with experts you can rely on to help navigate the ever-evolving import and export regulations. Our global network of trade policy experts are eager and available to answer your compliance questions. Connect with an expert today.

U.S. Importing and Exporting: Understanding the Basics