A case handled by Sandler, Travis & Rosenberg illustrates the benefit of companies importing into China being able to show China Customs evidence that they exercised reasonable care in the customs declaration process. Doing so can help demonstrate that a customs regulation infraction occurred without intent, which will typically be treated administratively with no penalty. On the other hand, a determination that a violation was committed intentionally will not only result in a penalty but will also downgrade the importer’s customs ranking.

During a recent audit China Customs challenged the Harmonized System code declared by the importer and concluded that it was due to an incorrect declaration. The case was subsequently referred to the Anti-Smuggling Bureau to determine if a penalty is to be assessed.

However, ST&R found that the importer consulted certified third-party classifiers to determine the proper classification. Although the findings of these classifiers are not binding on China Customs, they had received an endorsement from the local Customs Bureau as expert in the field of classification. In addition, the product at issue had been selected for physical inspections during customs clearance in the past and no red flags had been raised, including with respect to the HS code.

While both these factors are viewed as evidence of reasonable care exercised by the importer, it is important to note that unlike U.S. Customs and Border Protection, China Customs has yet to formalize a regulatory framework on the steps companies should take to meet this standard. In ST&R’s case, the importer’s reasonable care efforts were identified and highlighted to the audit official and forwarded to the ASB as considerations against penalty assessment. If the ASB rules otherwise, the importer will be able to appeal.

Using reasonable care may also help expedite import shipments. One recent reform initiative at China Customs focuses on accelerating customs clearance by allowing the release of goods based on a self-declaration by the importer with minimal review. This reform includes a more stringent post-importation audit process to enforce compliance, thus highlighting the importance of importers exercising reasonable care in preparing their customs declarations.

For more information on China Customs’ post-importation audit program, reasonable care interpretations, and developing an effective mitigation strategy, please contact Colbert Lam or Harry Zhang.

Click here to register for ST&R’s upcoming webinar on China Customs’ reforms.

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