U.S. Customs and Border Protection (CBP), like all other government agencies, has been under pressure not only to cut expenses but, where possible, increase revenues.  The primary source for revenues for CBP is duties collected on imported goods.  However, with the proliferation of special duty programs, such as the Generalized System of Preferences (GSP), African Growth and Opportunity Act (AGOA) and the like, an increasing number of goods are entering the U.S. free of duty.  Additionally, the past decade saw a large increase in bilateral free trade agreements (FTA's), such as Chile, Australia and Singapore, among others.  Although these FTA's provided a more competitive market for U.S. goods abroad, they also further increased the amount of goods entering the U.S. with no duties paid.  Currently over two-thirds of the goods imported into this country fall into one duty free category or another.  So, what's a government agency to do in order to bring in more money at a time of decreasing revenue opportunities?  The answer for CBP is the Revenue Collection Initiative under its Priority Trade Issues umbrella.
 
This effort has been reflected in two parallel initiatives within CBP.  First, Focussed Assessment reviews by CBP auditors have been closely scrutinizing documents related to duty free claims when they perform their on-site audits.  This is a somewhat time and manpower consuming effort for CBP.  So, they appear to have come up with a second, much simpler and more far reaching approach to verifying these claims - and possibly generating additional revenue - by involving the local import specialist at the port of entry level.  Instead of sending out a team of auditors to an importer's office, the import specialist simply sends out a CBP Form 28, Request for Information, and requests documentary proof that the goods on a single entry or a group of entries qualified for duty free entry under the rules of the particular program used.  This could be something as simple as a certificate of origin to something as complicated as proof from a manufacturer that it's goods meet the 35% rule under the GSP program.  It's up to the importer to furnish the required proof within 30 days. If the the importer doesn't respond to the request within the allotted time, CBP will follow up with a CBP Form 29, Notice of Action.

 

Even if an importer does respond, Customs may determine that  documents provided are insufficient to substantiate the claim and send out this same Form 29.  This Notice of Action typically will be a Proposed Action, which will give the importer another 20 days to submit either the original documents requested or any additional information. If there is still no response from the importer, or if Customs feels the information submitted still does not prove the duty free claim, the claim will be denied and the entry will be sent for immediate liquidation at the full rate of duty.  Once an entry is liquidated the importer will receive a bill for these duties, a process that is very hard to stop once it is put into motion.  Therefore, CBP has, with very little effort on its part, found a way to potentially generate significant additional revenue.
 
Importers, for their part, must take responsibility for any duty free claims made under any of these preference programs or FTA's. They must be ready to provide the specific documentary evidence that is required under the specified program to CBP whenever requested.  Unfortunately, each program seems to have its own peculiar set of requirements.  For instance, to qualify under GSP, the goods must be imported directly from the qualifying country and the imported article must be either wholly the growth, product or manufacture of that country or meet the 35% rule. The 35% rule allows goods to qualify as long as the total cost or value of the materials originating in that country, plus the direct costs of processing operations performed is not less than 35% of the appraised value of the merchandise (this 35% rule appears in some of the other preference programs as well). While a Form A used to be sufficient to substantiate a GSP claim that is no longer the case. Instead, Customs wants to see specific evidence of origin such as records of raw materials purchases, proof of factory labor, product specifications, bills of material, product cost sheets, payment records, overhead allocation schedules, and support for manufacturing overhead. Production records must establish the value of the materials used in the imported article by lot, batch or shipment.  
 
The Free Trade Agreement with Chile also requires documented proof that the imported goods qualify for duty free treatment similar to those under GSP, not just a certificate of Origin as under NAFTA.  Even claims for duty free entry for U.S. goods returned are being looked at more closely by CBP.  Documents needed to support any such claim - a manufacturer's affidavit, a foreign shipper's declaration and the importer's declaration - are being requested more frequently and scrutinized more carefully.
 
The bottom line is that any importer that wants to take advantage of duty free provisions under any of the FTA's or trade preference programs should expect to hear from Customs.  CBP has decided that there is additional revenue to be obtained by challenging such claims, so importers must be ready to provide the documentation as quickly as possible. Even though you may request an extension beyond the 30 days allowed for responding to a CBP Form 28, required records can be very difficult to obtain and even an extension may not be enough.  The best approach is to make sure you have either the needed records ahead of time or at the very least that the manufacturer is ready and able to produce them as soon as requested.  CBP, to its credit, has provided very useful information as to what is needed to support such claims on its website.  These can be found at http://www.cbp.gov/xp/cgov/trade/trade_programs/international_agreements/. Not knowing these requirements could be costly for an importer.