Being a little loose on customs compliance is a constant temptation for companies importing goods. Getting everything perfect demands unwavering attention and offers no obvious reward. Jeremiah Buckingham, the manager of JORI’s customs and consulting department, understands how importers feel. But in his view, meticulous customs compliance is still well worth the effort, because it can avoid a lot of bad things – and sometimes also put meaningful cash on the importer’s table.
Customs compliance is mainly about careful paperwork that gives the Canada Border Services Agency the information and supporting evidence it wants. That frequently demands specialized knowledge on how to classify goods and accurately assess their origins. Buckingham and his team bring that knowledge and experience to bear in helping their clients. “If you’re importing on a regular basis, it’s not a matter of if you’ll get audited by Canada Customs, it’s when,” says Buckingham. “If something in your own or even a single supplier’s paperwork is not in place, you’ll become a big, fat target.” Mid-sized companies – like a drilling contractor sourcing pipe and fittings from abroad – are the most susceptible.
The Harmonized Commodity Description and Coding System (HS) is the global standard for classifying traded products. The six- to ten-digit HS codes help customs departments worldwide evaluate goods for tariffs, security, import restrictions and trade data purposes. There are thousands of them, and as things are transformed from commodities, such as cattle, to manufacture products, such as processed meat, their HS codes change. Customs and other government departments take HS codes very seriously. Incorrect classification – such as coding drill pipe, which has one HS code, as a part of a drilling rig, which has another – can trigger fines, penalties and a tainted import record that could hamper subsequent imports;
Originating within the Canada-U.S.-Mexico free trade zone is a key source of lower or zero duties, so getting this wrong can be costly. “If anyone signs a NAFTA forms without diligence, they’ll be liable,” explains Buckingham. “A trail of evidence is needed that the goods were manufactured in the NAFTA area, such as supporting NAFTAs, affidavits or letters from manufacturers.”
Different goods categories have different domestic content requirements to be NAFTA-eligible. Furniture might contain wood from one country, hardware from a second, be designed in a third and manufactured in a fourth; and
Importers should go beyond merely supplying invoices and keep verifying documents such as cancelled cheques, credit card transaction confirmations or bank deposit slips. Customs, Buckingham notes dryly, “Is very upset if the invoice submitted is lower than the invoice issued by the supplier.” Having just one non-compliant party in the importer’s supply chain can generate an improper declaration. “Remember, you are legally attesting that everything in the documents is true and correct, and you are liable for the consequences if it isn’t,” Buckingham notes.
Customs can stop goods at the border, delay or seize the shipment, and impose fines under the administrative monetary penalty system (AMPS). Once an importer is red- flagged, its future AMPS amounts ratchet upwards. Customs might also audit an importer up to four years after the goods entered Canada, demanding evidence of suspect declarations and correction of problem records within 90 days. Failure can lead to a full-blown audit going back four years. Individual penalties can range from $100 to $10,000 per occurrence, or even a suspension of their importer license. The importer’s internal costs of re-doing entries and re- ling declarations going back four years will dwarf the fines.
Buckingham alone brings JORI’s clients the benefits of more than 20 years of hands-on experience. “I like the challenge of finding a problem that’s solvable and knowing that we have helped out the customer where someone else may have dropped the ball,” says Buckingham. He stays current with evolving issues by being active in the brokers’ association, attending conferences, doing a lot of reading and research, and working on case files. While his work focuses on reams of paperwork filled with codes and numbers, he’s quick with a smile and a joke.
JORI subscribes to a specialized database with the latest case law and customs rulings on evolving goods classification. “Selecting HS codes requires experience, judgment and keeping up with continual changes worldwide,” says Buckingham. Beyond HS classifications, he explains, “We provide comprehensive customs compliance solutions. We can provide a full-blown internal audit before Customs gets to you. Or we can focus on suspected problem areas, or on your top-10 suppliers, or ensuring that a single critical shipment has bullet-proof documentation.” JORI provides a written opinion that outlines the importer’s risks and remedies, such as seeking deeper paperwork from suppliers.
“We’re working on a recovery that could be well over $2 million, and we’ve recently recovered up to $65,000 in a single cheque,” says Buckingham proudly. More broadly, he says, customs compliance is another form of risk mitigation. Reducing fines and penalties should interest a company’s CFO, avoiding border delays should interest operations and sales, and improving the company’s reputation should interest the whole management team. “The main goal of customs compliance is an absence of negatives rather than measurable ‘benefits’,” says Buckingham. “It will protect you against fines and penalties, and make you a more attractive trading partner to serious and successful companies worldwide, which want to do business with companies that have all their processes well-organized.”