What is Import Compliance?

It is up to the importer of record to ensure they are accurately classifying their products, proactively applying for licenses, and correctly calculating duties. Each country, and even some regional bodies, such as the EU (European Union), ASEAN (Association of South East Asian Nations), and SAARC (South Asian Association for Regional Cooperation), can have their own import compliance regulations. There are several dimensions that cover import compliance, but the end goal is always the same – to keep organizations compliant and their supply chains moving efficiently.

There are three main aspects of import compliance:

• Identifying and classifying the goods being imported;
• Calculating tariffs and duties associated with importing the goods;
• Applying for licenses, if necessary. For example, in the U.S., food and medicine need to be registered with the FDA (Food and Drug Administration), while in Canada, pharmaceuticals may need to be registered with Health Canada.

Depending on the jurisdiction, as well as the nature of the specific goods being imported, there may be additional items to consider. For example, free trade agreements, trade quotas, free trade zones, and so on.

When importing a good or product, it is the responsibility of the importer of record to be compliant with import regulations. This compliance can best be achieved with awareness. In particular, once the product or good being imported has been decided on, the importer of record must have clarity on the following information:

• Country of Origin: Importers should be aware of the country that the imported goods were produced in;
• Suppliers: Importers should research the various suppliers for the goods they wish to import from;
• Duties/taxes: Along with other import compliance information, such as relevant classification codes, importers should know the duties and taxes that must be paid for the goods they wish to import; and
• Documentation: Importers should also be aware of the documentation expected by customs authorities at the port of entry for the goods being imported. This can include licenses, bills of lading, proforma invoices, and other so on.

The exact documents necessary for importing can vary, depending on shipment type, contents, and the destination country. There also may be specific restrictions and regulations that require their own documentation. Here is a list of some documents that are fundamental to most imports:

• Bill of lading: A legally binding document that works as a receipt of freight services between a carrier and a shipper. It includes details on the type, quantity, and destination of the goods being shipped, as well as signatures from representatives of all parties involved in the shipment. A bill of lading is mandatory with all shipments.
• Proforma invoice: A bill of sale sent to the importer in advance of the delivery of their shipment.
• SLI (Shippers Letter of Instructions): An optional document from the exporting party to the shipper/carrier about any specific instructions for delivery of the shipment.
• Certificate of Origin: Typically used for shipments where free trade agreement benefits are being claimed by the importer, certificates of origin are used to demonstrate that the products being imported originated in part or wholly from a given country of origin.
• Packing list: A packing list, as the name implies, lists out the contents of a package. The list can be used by shippers and customs authorities to adequately determine how the package should be handled.
• Commercial invoice: A commercial invoice is an essential document in the import process. In addition to containing the breakdown of charges involved in the shipping process, a commercial invoice should also include other information that can be used to properly ascertain the classification and value (and therefore, payments and restrictions) of a shipment. It should therefore include relevant information such as country of origin, details about the buyer, details about the seller, cargo destination, and other data points that may be deemed as being potentially helpful to minimizing potential disruptions with customs officials at the port of entry.

The entity (person or organization) responsible for all entry documents required by customs authorities for imported goods at the border is officially known as the importer of record. The importer of record is typically the owner, purchaser, or consignee who has the ownership of imported goods at the time of the imported goods are entering the country.

The country where the goods are manufactured or produced is known as the country of origin. It is necessary for the importer of record to know the country of origin for their shipments, because many nations impose different restrictions and duties on goods based on where they originated from. It is also important to note that the country of origin may not always coincide with the country from which the goods are being imported.

U.S. import regulations stipulate that importers exercise a “minimum standard of reasonable care” when complying with customs requirements. Other countries may have similar requirements, but with differing terminologies. The “minimum standard of reasonable care” is not concretely and specifically defined; rather, it is an expectation that the importer of record has exercised due care in classifying products, calculating duties, and applying for licenses.
The minimum standard of reasonable care, therefore, varies on a case-by-case basis. Organizations should strive to document all their compliance activities, including the reasoning used to arrive at a decision regarding product classifications, to be able to demonstrate that they attempted to meet the minimum standard, in the event of a government audit or inquiry in the future.

Generally, import regulations explicitly place the onus on the importer of record. Organizations may delegate this responsibility in different ways. Some organizations have a single customs employee who is in charge of verifying HTS codes, while others have a whole team dedicated to the task. Organizations can also choose to work with third parties such as customs brokers for the compliance process, though even in those situations, the responsibility of an inaccurate assessment falls to the importer of record, meaning it is in the best interest of the organization to still have some internal controls to verify and enforce accuracy, even when working with brokers or other external entities. Solutions can help importers classify accurately, assess import tariffs and duties, and remain compliant.