Directed Audits for ISA Members?

Dear Friends,

I thought you might be interested in a recent development involving the U.S. Customs and Border Protection (CBP) Importer Self-Assessment (ISA) Program.

As you know, ISA is a voluntary program that provides U.S. importers willing to invest significant resources in their internal controls with the opportunity to assume responsibility for monitoring their own compliance.  Importers that implement robust internal controls over customs matters, test those controls periodically to ensure that they are working effectively, and make any necessary changes to those controls (as well as file appropriate disclosures with CBP) are subject to less scrutiny.  More specifically, importers that participate in the ISA program are removed from CBP’s regulatory audit pool for Focused Assessments (i.e., customs compliance audits).  Such importers are, however, still subject to periodic review and re-certification by CBP.

The development of interest involves a letter CBP HQ recently sent to at least certain ISA members about the antidumping duty order on wooden bedroom furniture from China.  CBP’s letter advises ISA members that the U.S. Department of Commerce determined in May 2014 that 4 different styles of wooden chests imported by a prominent furniture company are within the scope of the order.  Given that this was a fairly surprising result (the petitioners had agreed with the furniture co. that these chests were outside the scope of the order), CBP believes that a fair number of importers may not have tendered antidumping duties when importing similar chests.  CBP’s letter requires the ISA members to conduct a self-assessment “to determine if you imported wooden chests from China under HTSUS subheadings 9403.50 and 9403.60, to determine whether the chests fall under the scope of the order.”  If the self-assessment reveals that within-scope-merchandise was imported, but ADD were not tendered upon importation, then CBP asks that the ISA member file a prior disclosure or post-entry amendment.  The letter provides the ISA members who received it five weeks to respond with the results of their self-assessment and proposed corrective action.  [It is also worth noting that CBP’s letter fails to mention that the scope ruling at issue has been challenged at the U.S. Court of International Trade and that action is currently pending.]

The interesting part here is whether CBP has the authority to require ISA members to conduct self-assessments.  There is no question that CBP could conduct its own assessment, but it is choosing not to do so.  Instead, CBP is asking ISA members to do so, requiring them to share the results with CBP and requiring them to take certain corrective actions (e.g., requiring them to file a prior disclosure).  CBP is trying to use the companies participation in a voluntary program (which is not governed by statute or regulation) to do something it could not otherwise do.

This is dangerous precedent that all ISA members (whether they received this letter or not), and all companies considering joining ISA, should be mindful of.   There would seem to be nothing stopping CBP from issuing similar generic letters requiring all ISA members to conduct a self-assessment on any number of issues (e.g., assists, transfer price adjustments, royalties, NAFTA claims, etc.) and file a prior disclosure or post-entry amendment if errors are found.

We hope you find this helpful.  If you have any questions, please let us know.

Best regards,

Ted

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