New Custom and Border Protection (CBP) regulations this month have implications for customs brokers and importers, and bring out-of-date permitting standards into the modern era.
Changes to the U.S. Code of Federal Regulations (CFR) taking effect on Dec. 19 will expand a broker’s responsibility to document relationships with importers. Under the new rules, customs brokers are required to have and maintain direct contact with importers, and must be able to provide records of those relationships if CBP requests them.
“Very often, importers have their primary relationship with a transportation provider—a 3PL, steamship line, freight forwarder,” OEC vice president of customs brokerage Matt Haffner told Sourcing Journal. These providers often recommend brokerage groups to clients who need help with customs clearance.
“Brokers obtain new business or new clients through various means, and one of those means is through a freight forwarder you have built a working relationship with,” he added. To maintain a competitive edge, freight forwarders have started offering “door-to-door” service, which includes customs clearance facilitated by a broker. Throughout this process, importers and brokers may not be in direct contact, Haffner said.
“In the eyes of U.S. Customs, the Importer of Record is ultimately responsible for every declaration made with their name on it, and what they want to ensure is that the importer doesn’t shirk any of their responsibility in that regard,” Haffner said, adding that the new rule is also “putting the brokers on notice that they need to deal with importers directly, not through a customer who may be a freight forwarder.”
The objective is to “make sure that the broker has a direct line of communication with an importer so that [they can] reach out and verify a classification, valuation or any substantive piece of information related to an entry, ” Haffner said. The rule encourages brokers not to rely on freight forwarders or 3PLs as middle men, and to go directly to the source for important information that could impact whether a shipment makes it into the U.S. or incurs certain duties.
According to Haffner, CBP and the National Custom Brokers and Forwarders Association of America (NCBFAA) have tussled over the details of the regulation for roughly five years. Brokers will have 60 days from the Dec. 19 implementation data to confirm power of attorney with importers, and establish communication that clarifies and proves the relationship. CBP has not yet released details on how it plans to verify compliance, though it could ask for documentation on a needs basis or through customs broker audits, Haffner said. He believes many importers are not aware of the rule, and they may hear of it for the first time from their brokerage partners in the coming months.
Another rule impacting customs broker licensing will also take effect on Dec. 19. CBP will transition all brokers to a single national permit, expanding the national permit authority’s scope and allowing all permit holders to conduct any type of business throughout the customs territory of the U.S. In order to do this, CBP is eliminating broker districts and district permits.
“To operate on a national level, a broker needed to have what’s called a national permit, and then at each location where it chose to operate, you were also required in that operation to have a qualifying license holder to act as a local permit qualifier,” Haffner said. That permit qualifier is now being eliminated. “All brokers, whether you are a mom-and-pop broker or you are a huge multinational broker with thousands of employees, in the U.S., regardless, you will all be converted to only a national permit.” The change could have the effect of “evening the playing field, regardless of what size broker you are,” he added.
Customs brokers will now also be required by law to notify CBP and importers of any breaches to their physical or digital systems that could impact sensitive data. “All of our databases, our ERPs whether it includes freight forwarders’ data, customs brokerage data and the client information behind that is all electronic in nature,” Haffner said. If a data breach includes any information related to an importer, a broker must contact the agency and provide a designated point of contact at the brokerage for record-keeping.
A broker must provide notification to CBP within 72 hours of discovering the breach of electronic or physical records, and the notification must include the Employer Identification Number (EIN) of any compromised importer. Within 10 days of the notification, brokers must provide an updated list of any additional EINs found to be compromised after the initial outreach. Other additional information pertaining to a data breach, if found, must be turned over within 72 hours of discovery.
“It’s very similar to what’s happening in the in the commercial world,” Haffner said. Breached retailers, for example, must quickly report that activity to consumers and retail industry regulatory authorities.
“This is U.S. Customs saying it’s time to update and get into 21st century as far as how we operate from a regulatory perspective,” he added.