In today’s complex global trade environment, businesses engaged in importing and exporting must take a proactive approach to compliance. Conducting a thorough risk assessment of your supply chain is not just a best practice—it’s essential to mitigating risks associated with customs audits, penalties, and potential supply chain disruptions.
Understanding Compliance & Reasonable Care
Customs authorities, including US Customs and Border Protection (CBP), expect importers and exporters to exercise reasonable care when engaging in cross-border trade. This means ensuring that goods are classified correctly under the Harmonized Tariff Schedule (HTS), meeting valuation requirements, adhering to trade agreements, and properly documenting all transactions. Failure to comply can result in costly penalties, shipment delays, and reputational damage.
Companies must not only ensure they are following tariff classifications and valuation rules but also verify that their supply chains are free from human rights violations. The Uyghur Forced Labor Prevention Act (UFLPA) and similar international regulations require businesses to conduct supply chain due diligence, ensuring that products are not linked to forced labor.
Key Steps in Conducting a Risk Assessment
A risk assessment should be a structured process that evaluates potential compliance risks and identifies corrective actions. The conference highlighted several critical areas companies should focus on:
- Classify Your Products Accurately
- Misclassification of goods can result in incorrect duty payments and penalties.
- Work with trade compliance professionals or customs brokers to ensure proper HTS classification.
- Leverage artificial intelligence (AI) and automated tools to streamline classification processes.
- Assess Country of Origin & Free Trade Agreement Compliance
- Verify the origin of your goods to ensure eligibility for trade agreements like USMCA, CPTPP, and the EU’s trade pacts.
- Maintain certificates of origin and supplier declarations to support claims of preferential treatment.
- Understand new rules of origin requirements under evolving trade agreements.
- Verify Proper Valuation of Goods
- Ensure declared values align with customs regulations and do not understate or misrepresent the value of shipments.
- Understand CBP’s methods of valuation, including transaction value, deductive value, and computed value.
- Stay updated on transfer pricing regulations to ensure consistency between customs valuation and tax obligations.
- Maintain Strong Recordkeeping & Documentation
- Keep invoices, bills of lading, certificates of origin, and other essential trade documents for at least five years.
- Conduct periodic audits to ensure all documentation is accurate and accessible.
- Implement a Robust Compliance Program
- Develop written policies and procedures covering all aspects of import/export compliance.
- Train employees regularly to stay updated on regulatory changes.
- Designate a compliance officer to oversee adherence to trade regulations.
- Establish internal controls for managing special trade programs such as Foreign Trade Zones (FTZs) and duty drawback programs.
- Stay Aware of Restricted Parties & Sanctions
- Screen business partners and suppliers against denied party lists and sanctions databases (e.g., OFAC, BIS, and UN sanctions lists).
- Ensure compliance with regulations enforced by OFAC, the Bureau of Industry and Security (BIS), and the U.S. State Department.
- Monitor geopolitical developments to anticipate potential changes in export control regulations affecting key industries like semiconductors, aerospace, and defense.
- Leverage Technology for Compliance Management
- Use automated compliance software to track trade activity, classify goods, and monitor regulatory changes.
- Implement tools that facilitate denied party screening, export license management, and real-time shipment tracking.
- Strengthen Supply Chain Security & Cybersecurity
- Participate in trusted trader programs such as CTPAT and AEO (Authorized Economic Operator) to demonstrate a commitment to supply chain security.
- Conduct cybersecurity risk assessments to prevent data breaches related to trade operations.
- Ensure vendors comply with security protocols to prevent cyber threats impacting trade compliance.
- Conduct Internal and Third-Party Audits
- Regular audits help identify potential compliance gaps before customs authorities do.
- Engage third-party auditors for an unbiased evaluation of your trade compliance program.
- Utilize data analytics to identify anomalies in trade patterns that could signal non-compliance.
The Benefits of Proactive Compliance
Companies that take a proactive approach to compliance reduce their exposure to penalties, shipment delays, and legal liabilities. Demonstrating reasonable care not only helps maintain good standing with customs authorities but also enhances supply chain efficiency and improves business reputation.
By integrating a strong risk assessment strategy into trade operations—while considering regulatory changes, supply chain security, and emerging technologies—businesses can confidently navigate the complexities of international trade while minimizing risks and ensuring long-term success. Mohawk Global is the trusted partner to help your business stay compliant and thrive in an ever-evolving trade landscape. Let’s talk.
By Christopher Scalisi, Senior Account Executive, Mohawk Global Trade Advisors