Reasonable Care: Theory and Practice

By Margaret M. Gatti, Esquire
May 1, 2000

If you are an importer, you undoubtedly have heard the phrase "reasonable care". More likely than not, however, when you heard about "reasonable care", you probably also heard about "shared responsibility", "informed compliance" and "enforced compliance". What do these four phrases really mean and what is their significance in the real world? This article will examine the theory of "reasonable care" and explore how "reasonable care" relates to "shared responsibility", "informed compliance" and "enforced compliance". Additionally, this article will discuss the responsibilities that "shared responsibility", "informed compliance", "enforced compliance" and "reasonable care" place on Customs and importers.

Reasonable care is a product of the Customs Modernization Act (hereafter referred to as The Mod Act) which was passed by Congress in December 1993 as part of the North American Free Trade Implementation Act. The passage of the Mod Act made responsibility for maintaining compliance with import laws and regulations a responsibility that was shared by U.S. Customs and importers. Prior to the passage of the Mod Act, Customs had the primary responsibility for insuring importers' compliance with import laws and regulations. In making import compliance a shared responsibility between Customs and importers, the Mod Act assigned Customs and importers separate - but interrelated - responsibilities.

Customs was assigned the responsibility to inform importers as to the compliance requirements for import laws and regulations and to enforce importers' compliance with import laws and regulations. Customs' assignment under the Mod Act, therefore consists of two separate tasks: informed compliance and enforced compliance. In executing its informed compliance task, Customs communicates import laws and regulations to the importing community and educates importers on how to comply with import laws and regulations. Customs executes its enforced compliance task by conducting cargo inspections, Customs' Inquiries and Compliance Assessments/Customs Audits to determine whether or not importers are doing what they're required to do in importing products into the U.S.

Importers, on the other hand, were charged under the Mod Act with the responsibility to heed the information imparted by Customs in its import compliance mode and to comply with import laws and regulations in entering merchandise into the U.S. and in determining for the entered merchandise entry values, product classifications, applicable duties, etc. The performance standard to which the Mod Act holds importers responsible for compliance with import laws and regulations is a standard of reasonable care. While reasonable care appears to represent a relatively simple concept, it actually defies any type of comprehensive explanation, however, and appears to be on a par with Customs' definition of pornography - you know it when you see it! Rather than attempting an explanation of reasonable care, therefore, Customs opted to compile a checklist intended to assist importers in meeting the responsibilities of reasonable care and in demonstrating their performance of reasonable care.

Customs' "reasonable care" checklist sites a series of actions that importers can take to insure that they remain compliant with import laws and regulations. Such actions include, but are not limited to:

1. obtaining binding rulings from Customs;
2. comparing the handling of entries of identical merchandise at different Customs' entry ports;
3. insuring that correct information is provided to Customs Brokers and to Customs;
4. hiring staff experienced in and familiar with import laws and regulations to process import transactions;
5. using "experts" for advice and assistance;
6. attending training sessions provided by Customs and "experts";
7. conducting periodic self-assessments of import compliance; and
8. establishing an internal import compliance program documented in an import compliance manual.

Among these actions, one of the most effective tools for insuring import compliance and demonstrating "reasonable care" is the establishment of an internal import compliance program that is documented in an import compliance manual.

In documenting an importer's internal import compliance program, import compliance manuals should detail an importer's import compliance procedures, describing both the overall compliance strategy and the specific day-to-day responsibilities and activities which must be performed. Additionally, import compliance manuals should deal with all major Customs issues, including import controls, import procedures and import record-keeping requirements.

Import controls must be dealt with in an import compliance manual because they set the stage as to what and how much an importer can import (import prohibitions and import restrictions) and as to whether or not an importer is obligated to address any specific product requirements or any country of origin marking requirements in importing products. Taking the form of import prohibitions, import restrictions, specific product requirements and country of origin marking requirements, import controls generally arise from concerns related to the U.S. economy, the preservation of domestic plant and animal life, consumer health and consumer well-being.

Equal in importance to import controls in an import compliance manual are import procedures. U.S. importers must follow certain procedures in entering products into the U.S.. These import procedures include, among others, the classification of imported products, the valuation of imported products and the preparation of the required documentation for imported products. Import procedures are the essence of an import compliance manual and no import compliance manual would be complete without full treatment of import procedures.

Last but not least, an import compliance manual must provide for import record-keeping requirements. Customs laws and regulations require importers to maintain import records and to make them available for examination by U.S. Customs on Customs' demand. Importers must maintain import records in their original form, whether paper or electronic. Import records must be kept and made available for examination or inspection by Customs for a period of 5 years from the date of entry, if the record relates to an entry, or for a period of 5 years from the date of the activity which required creation of the record. If an importer fails to produce an import record upon lawful demand by Customs, the consequences can be severe.

An import compliance program that is documented in an import compliance manual goes a long way in insuring an importer's compliance with import laws and regulations and in demonstrating to Customs that an importer is exercising reasonable care in the import process. In addition to these benefits, however, an import compliance program that is documented in an import compliance manual has an added benefit, in that such a program frequently safeguards importers from the imposition of monetary fines and penalties in the case of an import violation. Against this background, it is hard to understand why an importer would choose not to develop an internal import compliance program documented in an import compliance manual - in fact, it could be said that an importer's position in this regard defies comprehensive explanation, just like reasonable care!