Customs Compliance & Risk Management

Dear Reader,

Although CCRM is focused on Europe, trade is global, as are the many customs-related issues and challenges. Accordingly, we have established an international CCRM editorial board with editors currently from Europe, Asia and America. In each issue, an editor provides you with an overview of the issue or a focus on a relevant topic of current heightened interest.

Sustainability issues are currently a source of major concern facing the international trading community. However, as the former Executive Director of Laboratories and Scientific Services for the United States Customs and Border Protection (CBP) and currently the Chief Technology Officer of Global Security and Innovative Strategies (GSIS) I dealt with these issues as a CBP Executive and continue to deal with them with GSIS. Therefore, I would like to offer you my comments relating to Handling Customs Requirements Relying On "Deep Origin".

As we can see in the present issue of CCRM and in past issues of this publication national legislatures are asking their Customs Administrations to enforce statutes that require in depth knowledge of the countries of origin manufacturing, transportation, and storage processes. Specifically, statutes enacted or being considered for enactment in the United States and the European Union regarding Deforestation, Forced Labor and the Carbon Border Adjustment Mechanism (CBAM) are requiring their Customs Administrations to consider all of these processes that are accomplished in the country of origin from raw material to finished product in the process of determining admissibility. Whether determining these processes from cotton boll to finished pair of trousers or the thousands of parts that are needed to manufacture an automobile or refrigerator every component, no matter how small, must have its supply chain confirmed for these statutes. The exigent circumstances surrounding the acquisition of these multiples of supply chain information make acquiring the necessary information either exceedingly difficult or impossible.

Apparently, while the legislators did not realize or care about the difficulties that their legislation has caused, Customs Administrations have conceded that they will be unable to enforce the legislation in the way that they are accustomed. To give an example of the difficulty of enforcing the statutes one must consider the importation of a polyester or nylon piece of wearing apparel. The earliest precursors of nylon and polyester are hydrocarbons that come out of the ground in the form either of crude petroleum or natural gas. To develop a supply chain of the finished products from crude petroleum to a nylon shirt that will satisfy Customs Administrations the importer must be able to substantiate the flow of product through multiple pipelines, storage facilities, manufacturing plants, etc.  This will need the acquisition of metering tickets, pipeline flow and removal tickets, manufacturing feed data, storage release tickets, etc. These tickets are located in multiple facilities probably in foreign language that may or may not be easily translatable.  Both the United States in the case of the force labor statutes and the European Union in the case of Deforestation have surrendered to the fact that traditional methods of Customs enforcement will not work and placed the burden solely on the importers to substantiate the fact that their importations are not violative. 

Of course, the major problem with the Customs Administrations’ solution to the enforcement of these statutes is that those administrations will find it impossible to verify the supply chain info that is submitted by the importers. While the verification of the required supply chain information that has been submitted is achievable, the verification that the supply chain information matches the reality of the situation is extremely difficult. In fact, neither the importer nor the exporter usually has the slightest idea of the supply chain of what could be multiple components that go into their products. Further, to obtain the required supply chain information one must be familiar with a specialized area of accounting that deals with movement of petroleum and petrochemicals and with the manufacture of petrochemicals. The supply chain of products included in the European Union statutes relating to Deforestation is simpler. However, due to the multiples of movement from crude product to finished form one must be familiar with the manufacturing methods of products in the countries of origin to achieve the level of due diligence that the statute requires. 

The most uncomfortable fact about the enforcement of the statutes is the reliance of Customs Administrations on “outreach” to provide allegations of violative behavior. While the administrations have always relied on allegations of wrongdoing, the administrations never acted upon the allegations unless they were properly investigated due to the sometimes questionable nature of the allegations. Contrary to past practice, allegations made in the United States against importers of products purported to be derived from slave labor results in immediate detention of the merchandise under a Withhold Release Order (WRO). Though, the proposed Deforestation Statutes allow the importer to answer to the allegations prior to any actions taken against the merchandise. The European Deforestation Rules are hazy as to what will occur when the regulations come into force in 2025. However, it appears that if an allegation is made the importer will be given a chance to provide evidence that the products origination is not connected to an illegally deforested area. In all circumstances of allegations, the importer must prove that the product is not violative as opposed to the usual practice of the government confirming the allegation. The disturbing fact is that regarding slave labor U.S. Customs takes derogatory actions against the importer without determining the veracity of the allegation. In other words, these actions suggest a “guilty until proven innocent” mindset for enforcement that is contrary to the usual law enforcement mindset. For this reason, there is a chance that future lawsuits or World Trade Organization cases in opposition to the manner in which the statute are enforced could be successful.

We hope you enjoy exploring the wide range of topics in this issue and delving deeper into the current and future challenges of the world of customs.

Ira Reese
Chief Technology Officer and Director, Global Security and Innovative Strategies, the USA
Member of CCRM Editorial Board