It takes a village to prepare and file a customs entry. Importers rely on information they receive from vendors and their attorneys, licensed customs brokers, and consultants to ensure that reasonable care is exercised and their goods are properly entered. This multifaceted approach to compliance is a reflection of the very nature of the international transaction. The customs broker combines information from the transportation documents, commercial invoice, packing list, origin declarations, product specifications, etc., into its automated systems to transmit the entry information to U.S. Customs and Border Protection (CBP). This village is now electronic, with parties along the supply chain submitting electronic records that are ultimately processed by the customs broker’s systems to prepare and file an entry. This village is also regulated: no person or entity may conduct “customs business” on behalf of another without a valid customs broker’s license.[1] CBP’s current interpretation of “customs business,” however, throws into confusion whether the preparation and transmission of the information associated with ordinary international trade activities could be considered unlawful.
As the U.S. Court of International Trade observed in a 2008 case, the “definition of ‘Customs business’ is very broad.”[2] First, customs business includes “transactions with the Customs Service” as well as “activities involving transactions with the Customs Service.”[3] Second, customs business includes preparing documents intended to be filed with the Customs Service, as well as any activities related to preparing documents to be filed with the Customs Service.
In interpreting the term “customs business,” however, CBP has applied a logic that, if taken to its logical conclusion, would threaten the legality of the collaboration many importers use to assure compliance and to create efficiencies in the international supply chain. This does not seem to serve the interests of the companies involved in international trade, the customs brokers who facilitate these activities, or CBP. The compliance-oriented interpretation of “customs business” that CBP developed for large corporations in its rules on “corporate compliance activities,” however, presents an alternative that could be applied to the activities of smaller businesses.
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CBP has seemingly departed from the statutory requirement that the definition of customs business is focused on the preparation of the information or documentation that is to be filed with CBP. For example, in preparing a customs entry, the imported goods must be classified under the correct provision of the Harmonized Tariff Schedule of the United States (HTSUS), an exercise that requires some training and skill. Generally, it is the manufacturer of the goods that has the knowledge of the detailed information required to arrive at the correct tariff classification. CBP has determined, however, that the provision of an HTSUS classification is “customs business” if a “possibility exists that the . . . classification information . . . will end up on the entry.”[4] CBP relied on this concept in a 2022 customs ruling to determine that it would be unlawful for a supplier—the party arguably in the best position to determine the classification of an item under the HTSUS—to provide its customers with the classification for its merchandise.[5] In the ruling, CBP appears to suggest that providing a tariff classification is tantamount to preparing documents intended to be filed with CBP on the basis that the provision of a tariff classification is “giving advice about how to classify a good,” which is a “necessary part” of preparing documents that will be filed with CBP.[6] This determination subjects the supplier to penalty for engaging in those activities.
This raises the question as to whether to merely print the tariff classification on the invoice—a common practice in international trade—would be the unlawful practice of customs business. Similarly, since “activities involving . . . valuation” are included in the definition of customs business,[7] and since the price paid or payable for the merchandise when sold for export to the United States is generally the value stated on the invoice, would placing a value on an invoice also be customs business?[8] In fact, since the commercial invoice is prepared with intent that it be filed with CBP, then CBP’s recent interpretation of “customs business” would seem to suggest that the generation of a commercial invoice for a customer may be considered customs business. Since customs entries include information about the transportation that was involved in bringing the goods to the United States, would the preparation of these documents also be customs business?
CBP has already determined that the gathering of some of this information by an unlicensed person is “customs business.” In a December 2023 customs ruling, CBP determined that using foreign persons to enter information from the various commercial invoices, packing lists, shipping documents, and other documents used in international transactions into an Automated Broker Interface (ABI) system constituted unlicensed customs business activities.[9] While this decision is reasonably supported by the fact that using an ABI system—a system that is specifically designed for the preparation and filing of customs entries—is directly related to preparing “documents” and the related information for transmission to CBP, this interpretation raises questions that may need to be resolved in separate rulings. For example, as mentioned above, preparing new entry documents involves accumulating information from different sources. CBP could determine that using EDI (electronic data interchange) to transmit the invoice or bill of lading information to a customs broker for use in the preparation of the customs entry is customs business, as it is known that the information will later be transmitted to CBP. What if an unlicensed service provider receives those transmissions and consolidates the information for transmission to the customs broker?
For large corporations, CBP has developed a regulatory framework that resolves many of these problems. Importers are obligated to exercise “reasonable care” in the preparation of a customs entry. The responsibility of “reasonable care” includes seeking the advice of parties with specific, or expert, knowledge, including consultation with unlicensed persons.[10] The types of “unlicensed persons” an entity can consult with to ensure it has undertaken “reasonable care” in describing and/or classifying merchandise are “experts,” such as attorneys, licensed customs brokers, or customs consultants. In 2002 and 2003, large corporations approached CBP about centralizing their compliance activities. After several rulings that found it to be the unlicensed practice of customs business when one corporation performed compliance activities for other corporations within the corporate group, CBP crafted a rule that removed “corporate compliance activities” from the definition of “customs business,” drawing on the “reasonable care” concept.[11] “Corporate compliance activity” is defined as:
[an] activity performed by a business entity to ensure that documents for a related business entity or entities are prepared and filed with CBP using “reasonable care”, but such activity does not extend to the actual preparation or filing of the documents or their electronic equivalents.[12]
In other words, “corporate compliance activity” allows one company in a corporate group to conduct some customs business for other businesses within the group, even if the company providing those service is not licensed. In the words of CBP, the company providing these “corporate compliance activities” may “conduct any activities mentioned in the definition of ‘customs business,’ other than the actual preparation and filing of documents, so long as those activities fall within the definition of ‘corporate compliance activity.’”[13]
This description of “corporate compliance activity” allows these companies to do nearly anything that is considered to be “customs business” when performed by an unrelated party. Only those activities that involve the actual preparation and filing of documents with CBP are excluded from corporate compliance activities. The final rule on “corporate compliance activity” states the following:
The proposed definition of “corporate compliance activity,” which precludes the “actual preparation or filing of the documents or their electronic equivalents,” . . . is intended to emphasize that the documents in question are those that will be filed with CBP. Therefore, any work performed in anticipation of document preparation, including the gathering and organizing of information and its recordation on background paperwork, will be allowed under this provision.[14]
There is no statutory reason to adopt these requirements when the importing entity is part of a corporate group but not when the importer is an independent business. Yet CBP’s rulings draw this distinction, placing independent importers at a disadvantage as compared to competing importers that are part of a group of companies and may use unlicensed persons from one company to provide advice to the importing entity.
CBP has made significant investments in technology to gain visibility in the movement of goods through supply chains and their importation into the U.S. The international trade community is attempting to adjust to this reality by developing mechanisms to electronically bring together information from the various parties involved in the supply chain. CBP’s interpretation of “customs business” threatens to stifle these innovations in a manner that is not in the interest of CBP or the international trade community, nor does this interpretation serve the purpose of the customs broker statute. Expanding the concept of “corporate compliance activities” to include all such activities, regardless of the relationships between the parties, could go a long way toward recognizing modern business practices and encouraging compliance, while also serving the purpose of the customs broker statute.
“Customs business” is defined as “those activities involving transactions with U.S. Customs and Border Protection concerning . . . classification and valuation. . . . It also includes the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with U.S. Customs and Border Protection . . . [of merchandise] or activities relating to such preparation, but does not include the mere electronic transmission of data received for transmission to Customs. No person may conduct customs business on behalf of another unless they hold a valid customs broker’s license.” 19 U.S.C. § 1641(a)(2) (emphasis added). ↑
Delgado v. United States, 581 F. Supp. 2d 1326 (Ct. Int’l Trade 2008) (examining, in dicta, the definition of “customs business” in the context of a proceeding to revoke a broker’s license). ↑
Id. ↑
HQ H290535 (Sept. 29, 2022). ↑
Id. citing HQ 115278. ↑
19 U.S.C. § 1641(a)(2). ↑
Id. ↑
HQ H326926 (Dec. 19, 2023). ↑
CBP, What Every Member of the Trade Community Should Know: Reasonable Care—An Informed Compliance Publication (Sept. 2017), last visited Jul. 29, 2024. ↑
68 Fed. Reg. 47455 (Aug. 11, 2003). ↑
19 C.F.R. §111.1 (emphasis added). ↑
68 Fed. Reg. at 47456. ↑
Id. at 47457. ↑
