U.S. Customs and Border Protection recently overturned a $7.5 million port-issued penalty, along with a $3.7 million duty demand, against an importer charged with negligence by making false NAFTA tariff preference claims.

This case involves a Canadian manufacturer that acts as U.S. importer of record when shipping some of its products to the U.S. Over a nearly six-year period, this company filed 1,766 entries of goods containing inputs sourced in the U.S., for which it claimed duty-free treatment under NAFTA. In making these claims the company relied in part on certificates of origin issued to it by the supplier of the inputs, which certified that those items satisfied the NAFTA rules of origin.

After a review of these entries, a CBP port issued the penalty notice and duty demand to the Canadian company on the grounds that it had committed a negligent violation of 19 USC 1592 by making false NAFTA preference claims. The port claimed that the company relied on the supplier’s blanket certificates of origin without knowledge as to whether the inputs were in compliance with NAFTA and that the supplier did not have a valid inventory management system in place and was therefore unable to issue valid certificates of origin. The port also

asserted that the company “failed to exercise reasonable care because it did not consult with a CBP expert or customs broker, did not seek a binding classification ruling, and did not develop any corporate policy for ensuring customs compliance.”

The Canadian company, represented by Sandler, Travis & Rosenberg, P.A., refuted these charges. The company pointed out that it fully understands NAFTA requirements and made every attempt to exercise reasonable care in line with the recommendations in CBP’s February 2004 informed compliance publication on this subject. Specifically, the company has worked with consultants, customs brokers and even CBP itself to determine the proper way to address NAFTA-related concerns. It also did not blindly rely on the supplier’s assertions given its intimate knowledge of the supplier’s operations based on a 40-year business relationship. The company further asserted that the documentation provided by the supplier fully allows the tracing of NAFTA-qualifying inputs down to a very specific level and that the information in this documentation was correct.

CBP Headquarters agreed with the Canadian company and concluded that there was no violation of 19 USC 1592. The certificates of origin that the input supplier provided to the company appeared to have been properly executed, CBP concludes, and given the longstanding commercial relationship between the two and the company’s familiarity with the requirements for entering merchandise under NAFTA there was no obvious reason why the company should have doubted the veracity of these certificates and discounted them in determining the origin of its own finished goods.


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