By Cindy Deleon, Founder & Managing Director, Deleon Trade LLC
Play by the Rules: Mastering Free Trade Agreements to Avoid CBP Penalties
Claim it if you can, prove it if you must! Free Trade Agreements (FTAs) offer big benefits—but only to those who follow the rules. For those who don’t? Expect not just duties but potentially hefty penalties.
The Compliance Game: What’s at Stake?
U.S. Customs and Border Protection (CBP) isn’t just taking your word for it when it comes to trade compliance. They conduct FTA origin audits and reviews to ensure businesses are playing fair. These reviews are conducted by CBP Import Specialists, Auditors, or both. The key to staying penalty-free? Preparation.
How CBP Checks Compliance
CBP has several tools in its arsenal to verify FTA claims, including:
- Written Requests (CBP Form 28) – Importers, exporters, or producers receive a request for documentation, often starting with just one entry… but don’t be surprised if more follow!
- Verification Visits – CBP may show up at foreign manufacturing sites to inspect documents and production processes.
- Risk and Analysis Survey Assessments (RASAs) – A targeted request for supporting documentation on multiple entries, accompanied by a compliance questionnaire.
- Formal Audits – The big leagues. A formal initiation letter leads to a deep dive into trade compliance policies, procedures, and up to five years’ worth of import history.
Responding to these requests requires significant time and resources.
The Price of Non-Compliance
If CBP finds errors, businesses may face more than just paying back duties, taxes, and fees. Violations can trigger penalties under 19 U.S.C. § 1592 ranging from negligence to fraud.
Staying Ahead: Preparing for a CBP Origin Engagement
Want to avoid trouble? Here’s your action plan:
- Conduct Internal Reviews
- Know the eligibility requirements for each FTA you claim.
- Verify country-of-origin claims.
- Ensure the applicability of trade remedies were reviewed.
- Maintain a Strong Compliance Program
- Assign a compliance officer to oversee trade compliance.
- Develop training, stay current, and follow written procedures.
- Perform regular internal-audits to ensure adequate records are maintained.
- Foster strong relationships with foreign vendors who maintain essential documentation.
- Responding to CBP Requests
- Assign an internal contact (not just your broker!) to manage CBP interactions.
- Read all requests carefully to respond completely.
- Submit accurate and complete documentation!
- Key Documentation to Keep on Hand
- Entry packages, payment records, and Certificates of Origin.
- Flowcharts, technical specifications, and manufacturing process details.
- Bills of materials, including HTS codes, origin, and costs.
- Producer affidavits confirming origin.
- Purchase orders, proof of payment, and raw material invoices.
- Production records, export documents, and inventory records.
While businesses aren’t required to have all of this documentation at the time of claiming an FTA, they must be ready to provide enough proof if CBP comes knocking.
Final Word: Stay Ready, Stay Compliant
Mastering CBP compliance isn’t just about avoiding penalties, it’s about ensuring smooth operations and maximizing trade benefits. By maintaining proper records, understanding FTA requirements, and building a solid compliance program, businesses can claim Free Trade benefits with confidence. So, play by the rules, and let FTAs work for you!
