Customs proposal could ease importers' burden

A plan to allow aggregate payment of duties could save both importers and the Customs Service time and money. Reaction to the proposal is mixed.

By -- Logistics Management, 5/1/2000

As long as there has been a U.S. Customs Service, goods have been cleared for entry into commerce in the same way: one shipment, one entry. The Customs Service has always treated each shipment-and any monetary activity associated with it-as a separate and discrete transaction.

That can be very cumbersome-something like a business's maintaining a separate bank account for each purchase it makes. As the volume of trade continues to grow, the "one shipment, one entry" approach is likely to impose serious strain on the agency's outdated information processing program-the Automated Commercial System (ACS). Import volumes, already high, are growing fast. In 1999, U.S. Customs processed more than 21 million entries, and the agency projects that number will more than double by 2006.

That's one reason why the Customs Service has floated a proposal called the Entry Revision Project (ERP), which would allow the agency and importers to manage aggregated duty payments separately from the entries themselves. Some industry groups are supporting it in principle but question certain provisions of the plan.

Customs Service officials emphasize that the Entry Revision Project proposal is a framework for discussion with the importing community, not a mandate. If the agency does goes forward, though, it could change the way the agency and importers do business together. It also should, as Customs Commissioner Raymond Kelly recently told a customs brokers' convention, bring the entry process up to speed with how business is done-and save the Customs Service and importers time and money.

Four Changes Proposed

As proposed by U.S. Customs, the Entry Revision Project would make changes in four areas as follows.

• Cargo release and entry. The ERP plan as envisioned would retain most of the data elements currently required for cargo release and entry. It would continue to allow customs brokers to make duty payments on behalf of their importer clients. What's different is that payments of duties and penalties could be aggregated for all types of entries except "Track 1" entries, which require payment up front as a condition for release. The primary benefit of this proposal is that it would allow cargo release and data processing to be administered on a stand-alone basis, a change Customs Service officials say would shorten the cargo-release process.

• Billing and payment system. Currently, the Customs Service issues many thousands of individual invoices and refunds because of various types of post-entry corrections, and each such transaction is processed and paid separately. The agency proposes instead to create an account-based "Money Management System (MMS)" that would issue monthly invoices showing all activity related to a particular importer, including an ending balance. (See the example on Page 67.) The Customs Service also proposes charging interest on unpaid balances and suggests that to avoid paying interest, importers or their brokers estimate their monthly billings and pay in advance. The main benefit would be a huge reduction in administrative time, cost, and computer usage for U.S. Customs. MMS also may reduce some administrative costs for importers.

• Correcting entry information. The Customs Service proposes allowing importers to file routine corrections electronically. This would replace the Supplemental Information Letter (SIL) currently used to make such changes. Automating the update process would let importers file corrections in the same way they filed the initial entry. The Customs Service would be able to process routine corrections electronically rather than manually, and the agency could provide feedback on corrections more quickly. This also would let the Customs Service provide the Bureau of the Census with adjusted trade statistics, which now are based on initial entry filings and do not reflect subsequent changes.

• Finalization of import entries. The Customs Service suggests eliminating the practice of "liquidation," in which the agency notifies importers that an entry's status has been finalized. That would be replaced with "Finality of Declaration," which would allow importers to make simple amendments under a "regular" option within 30 days from time of entry or apply for permission to use the "extended" option of 15 months.

According to Customs Service officials, these and other procedural changes would introduce more flexibility into the system as well as eliminate difficulties related to "flagging" entries that have unresolved problems. The Customs Service also proposes taking up to three years to review entries.

Importers Express Concern

The Entry Revision Project on its face may have some appeal, but the proposal also raises many questions, not the least of which is whether the Customs Service will be able to implement the statutory and information-system changes that will be necessary if ERP is to go forward. According to an analysis by the National Customs Brokers and Forwarders Association of America (NCBFAA), some aspects of the plan, such as the Money Management System and changes to the entry liquidation process, will require enabling legislation. Another analysis, by the Joint Industry Group (JIG) trade association, concluded that only the liquidation changes would require legislation. Whatever the case, some kind of legislation will indeed be needed.

At this stage, though, the most important thing is to design a system that is acceptable to everyone, said John Durant, director of U.S. Customs' Commercial Rulings Division, at the Coalition of New England Companies for Trade (CONECT) annual conference in Newport, R.I., last month. "Focus on what you want [to accomplish] first," he said, "then do the legal analysis."

Durant also said that the Customs Service was anxious for the trade community to reach agreement quickly on the Entry Revision Project because it should be designed into the agency's much-needed new information system, the Automated Commercial Environment (ACE). The agency has had little success to date in obtaining funding for ACE, but he was optimistic that the fiscal logjam would soon be broken. (See story on Page 91.)

Although importers and customs brokers support efforts to make entry processing more efficient, they have several concerns about ERP as it is proposed. John Peterson, Customs Committee chairman for the NCBFAA, says his group is concerned that eliminating transaction-based processing would pose problems for small- and medium-sized importers, which would have to make costly changes to their internal accounting and tax information systems. Eliminating transaction-based processing would primarily benefit the very largest importers that already are eligible to bring in repetitive shipments from Mexico and Canada with minimal data, Peterson continues. NCBFAA, therefore, wants the Customs Service to retain transaction-based processing as an option for the many importers that are likely to need it. Some observers also note that brokers could lose money if the number of monetary transactions were reduced, while brokers point out that handling an entry twice-once for clearance and again for payment of duties-could raise their costs.

Brokers, however, favor the Customs Service's proposal to separate entries from payments and to offset payments and refunds, as long as the new system allows them to attribute activities to specific importers' accounts. "We will still need an audit trail," Arthur Litman, vice president, regulatory affairs and compliance for Tower Group International, told the CONECT conference. "Consolidated entries have to be able to link back to the original entry."

NCBFAA, meanwhile, takes issue with the Customs Service's plans to charge interest on unpaid balances. Not only does the Customs Service already have difficulty handling interest assessments, but the proposal also appears to make brokers responsible for any interest incurred, a situation no broker could afford, says Peterson. Instead, NCBFAA is suggesting that the Customs Service use the model currently in place for payment of taxes on wine, beer, and distilled spirits. Under that system, importers pay taxes on the 15th of the month following the month of entry, and no interest is assessed. Setting it up would require the Treasury Department to take a one-time charge for lost cash flow at the start, but it would be more than worth it, says Peterson. "The savings in processing costs," he notes, "should greatly outweigh the temporary loss of revenue."

Other parts of the ERP proposal are being questioned as well. Importers and brokers consider the 30-day "regular option" period for correcting routine entries to be too short. Instead, they are proposing a revision period of 18 months for all corrections. Many importers also oppose the requirement that they apply for permission to use the extended correction period.

Importers generally object to giving the Customs Service a three-year review period, but agency officials say it would work in an importer's favor if a review or audit were to discover an error requiring additional payment. With a longer review period, the agency suggests, it could address such corrections through "normal" channels rather than through legal action, as is sometimes the case now-a claim importers view with skepticism.

Government agencies and the importers and brokers disagree on how much data should be collected under a revised system. Importers and brokers see ERP as an opportunity to simplify the amount and type of entry data they must file; officials at the Customs Service and the Bureau of the Census say the government still needs all of that information. But Boston-based customs attorney and Logistics columnist Rodney C. Schonland believes aggregating entry filings is bound to put pressure on the government to ease up on that demand for detail. "Details about which carrier has what goods ... and whether goods came in on a Taiwanese-flag or a Panamanian-flag vessel are not relevant anymore," he says. "The miniscule level of detail has to erode in the aggregate."

Although it's clear that the import community has reservations about parts of the Entry Revision Project, there is support for some aspects of the concept. Many see it as a general step in a positive direction. "I think it's a good idea," Schonland says. "Customs has been trapped in the ... mindset that handles each transaction in total isolation. In today's global economy and with the volume and velocity of transactions, that's no longer realistic."

Faster and Cheaper?

Entry simplification clearly is an idea whose time has come, and it seems likely that some version will be implemented before too long. But many details remain to be worked out, including passage of enabling legislation and provision of the necessary funds. It's critical, too, that all sides agree on what changes should be made before any substantive work is done on programming for the ACE system.

Reaching that agreement may not be easy and it may not happen as quickly as the Customs Service and the trade would like. If the import community is ever to come together on this issue, says Tower Group's Litman, importers, brokers, customs attorneys, and customs officials must make decisions based on their responses to a single question: Is what they are proposing faster, more compliant, and cheaper than what they are doing now?

Editor's Note: The full text of the Customs Service's proposed Entry Revision Project may be found on the agency's Web site (www.customs.treas.gov) under "News/Federal Register Notices" for Dec. 14, 1999.