34 ISE Magazine | www.iise.org/ISEmagazine
May 2019 | ISE Magazine 35
Good compliance is good logistics
Careful management of import-export obligations and regulations can save time, money
By Diana Berry and Francisco Ramirez
36 ISE Magazine | www.iise.org/ISEmagazine
Good compliance is good logistics
Whether you are a small company importing
or exporting products between two coun-
tries or a large multinational corporation, the
complexity of regulations applies equally. To
ensure that all regulatory requirements are
properly addressed and nothing is missed,
successful companies should have a Trade Compliance
Management Program. Most companies that have been
in business for a long time have a well-established TCMP,
such as those in the aerospace and automobile industries.
Though specialized logistics companies can assist with
the development of a TCMP, companies new to importing
and exporting goods or services should hire or develop in-
ternal resources to handle all compliance matters.
According to APICS, the premier association for supply
chain management, logistics is the subset of supply chain
management that controls the forward and reverse move-
ment, handling and storage of goods between origin and
distribution points. The European Institute of Export
Compliance denes export compliance as a specialized
multidisciplinary framework that provides support to orga-
nizations in compliance risk management – the risk of legal
or administrative sanctions, financial losses or a deteriorat-
ing reputation for failing to comply with laws, regulations
and legislation, codes of conduct and good practice (laws,
regulations and rules).
A TCMP varies between companies, but the concept is
generally the same. The company should create a compre-
hensive TCMP explaining all the processes involving U.S
Customs at all levels of the organization. Companies cur-
rently working toward certification in the new version of
the standard ISO 9001:2015 (ISO 9001 is an international
standard that gives requirements for an organizations qual-
ity management system) will benefit from having a prop-
erly implemented TCMP to alleviate risk. ISO 9001:2015
presents the concept of risk management in its introduc-
tion. In general, ISO 9001 has always advocated mitigating
and avoiding risk and addressing the issue through preven-
tive actions.
TCMP benets
The complexity of compliance management covering all
import and export requirements may sound overwhelm-
ing but understanding the intricacies of the regulations can
decrease legal exposure and reduce costs. A well-managed
compliance program can mitigate risk and offer economic
When a company imports or exports goods, sooner or
later it will have to handle trade agreements. The Unit-
ed States has 14 free trade agreements with 20 countries.
Trade agreements determine tariffs and duties that coun-
tries impose on imports and exports. One of the most
popular FTAs is formerly known as the North American
Free Trade Agreement, recently updated to United States-
Mexico-Canada Agreement. The agreement certificate of
origin is used by Canada, Mexico and the United States
after determining that the goods are qualified for program
eligibility. Goods imported into participant countries re-
ceive reduced or eliminated customs duties as specified by
the agreement. The certificate is not necessary in all cases;
however, it is common to see companies waste time and
effort crafting incorrect or nonapplicable certicates. It is
also common for manufacturers to receive customers’ re-
quests for certificates with items not made in the partici-
pating regions.
In some instances, companies issue FTA certificates be-
fore checking the import duty rate at the destination coun-
try. If there is no duty rate for a commodity, determining
whether the item qualifies under an FTA and issuing a cer-
tificate is a waste of time and effort.
Another way a company can benefit from a well-man-
aged compliance program is use of a duty deferment pro-
gram such as duty drawback. If the company has exported
or intends to export goods previously imported with duty
paid, a refund of up to 99 percent of the duty can be ob-
tained. Duty drawback is a monetary rebate that Customs
and Border Protection (CBP) offers to allow importers, ex-
porters or manufacturers a potential refund.
Following the latest increase in tariffs imposed by the
U.S. government on Chinese steel and aluminum products,
the duty drawback program has become more relevant,
especially for companies manufacturing goods to export.
Though the program is not applicable for raw steel and alu-
minum as listed in CBP section 232, it does apply for about
1,300 harmonized tariff schedule codes listed in CBP sec-
tion 301, allowing exporters to recover up to 99 percent
of duties paid for a product exported within a certain time
Another way to mitigate costs is by using temporary duty
free/tax free import and export programs such as the ATA
Carnet. This international customs document permits tax-
free and duty-free temporary import and export of goods
for up to one year, and is also known as the “merchandise
passport.” The ATA Carnet is administered by the World
Customs Organization and International Chamber of
Commerce through its World Chambers Federation.
The ATA Carnet is practical for companies wanting to
show their products in foreign markets, such as trade shows,
or for professionals carrying tools of the trade. It is cur-
rently in force in 85 countries and regions, and its usage
applies to three broad categories of merchandise: commer-
cial samples, professional equipment and goods for use at
exhibitions and fairs.
The ATA Carnet has three main advantages:
May 2019 | ISE Magazine 37
1. It reduces costs to the exporter eliminating value-added
taxes, duties and the posting of security normally re-
quired at the time of importation.
2. It simplifies customs procedures because it allows a tem-
porary exporter to use a single document for all customs
transactions, plans or entry to many countries in ad-
vance, and does so at a predetermined cost.
3. It facilitates re-entry into the U.S. because it eliminates
the need to register goods with U.S. Customs at the time
of departure.
Other ways companies can benefit from a well-established
TCMP is by checking duty rates of their products in differ-
ent countries to identify the lowest rate applicable. This helps
companies decide what market opportunities will be price
competitive and financially beneficial for their sales and mar-
keting strategies.
Difference in customs duty rates on similar products creates
opportunities to reduce duty expenses for imported items by
modifying their design. This strategy is known as tariff en-
gineering, which is structuring products to achieve favorable
duty treatment upon import. It is the process of product de-
sign to reduce duties, taxes and fees associated with importing.
When used effectively, tariff engineering achieves significant
cost savings.
An example of this is Converse sneakers. For years, the de-
signers have added felt to the bottom of their sneakers to qual-
ify for a lower duty rate of 3 percent instead of 37.5 percent.
Suppose your company manufactures two shirts with dif-
ferent blends of cotton and polyester. If a T-shirt is a 55 percent
polyester and 45 percent cotton blend, it will be classified as
polyester because its majority material has a duty rate of 32
percent. If you re-engineer the item as 55 percent cotton and
45 percent polyester, the result is a lower duty rate of 16.5
Another application of tariff engineering is the Ford
Transit Connect Van. Gasoline-powered vans can be clas-
sified under two different duty codes for 2.5 percent or 25
percent duty rate, depending on the description of the item.
Ford applies tariff engineering (see accompanying article
on Page 38). In the imported condition, the vans have front
seats, a rear bench seat and rear side windows. Ford classi-
fies them as passenger vans with a duty rate of 2.5 percent.
Shortly after entry, Ford transports the vans to a nearby
facility, where the rear windows are removed and replaced
with solid panels, the bench seats are removed and cargo
bays are installed. Ford then sells the transformed Transit
Connect to customers as cargo vans.
Tariff engineering is not always a viable option, such as
when technical specifications or contractual requirements
require specific product design details. However, it may be
beneficial to analyze whether similar products made from
different materials or from a different country of origin
might be subject to a lower duty rate.
Program elements
An effective TCMP is a good business investment. The
program is used to optimize a company’s import- and ex-
port-related activities to ensure compliance with govern-
mental regulations, reduce costs and allow for intercom-
pany consistency.
To be successful, a TCMP should include the following
elements: management commitment, continuous risk as-
sessment, documented compliance policies and procedures,
Trade compliance
management program
1. Management commitment
2. Continuous risk assessment
3. Documented compliance policies and procedures
4. Ongoing compliance training and awareness
5. Pre- and post-export compliance security screening
6. Recordkeeping
7. Trade compliance monitoring and auditing
8. Compliance problems and violations handling
1. Regulatory risk mitigation
2. Cost savings through effective use of free trade agreements,
duty drawback, temporary duty free/tax free export and
import program (ATA Carnet) and tariff engineering
3. Improves internal and external communication
4. Increases operational efficiency
5. Reduces adverse publicity
6. Improves documentation and recordkeeping
38 ISE Magazine | www.iise.org/ISEmagazine
Good compliance is good logistics
ongoing compliance training and awareness, pre- and post-
export compliance security and screening, record keep-
ing, compliance monitoring and auditing, and compliance
problems and violations handling.
Management commitment. Senior management
commitment is key in successful implementation of a
TCMP. Like other company initiatives, such as a quality
management program, without management support the
effort will not be embraced by the rest of the organiza-
tion. Strong management support should be communicated
through a management policy statement voicing the com-
panys expectations and commitment to overall compli-
ance. This communication should also address company
associates as well as all third-party providers and contract
business partners.
Continuous risk assessment. A successful TCMP as-
sumes the worst can happen at any time. It anticipates what
could happen, plays it out and establishes mitigation strate-
gies. The company should establish a strategy to mitigate
the risk and develop risk reduction processes and proce-
dures. The risks that pose the greatest threats are those with
no controls in place and should take priority.
One example is a manufacturing company that screens
its international customers before shipping and has imple-
mented a standard operating procedure to regularly check
the Denied Persons List and the Consolidated Screening
List. The CSL is a list of parties for which the U.S. govern-
ment maintains restrictions on certain exports, re-exports
or transfers of items. The Denied Persons List includes
people and companies whose export privileges have been
Van tariffs originated with 1960s ‘chicken tax’
Ford’s efforts to avoid higher tariffs on its overseas-made Transit Connect vans goes back to a half-century old trade war known as
the “chicken tax.”
The tax is a 25 percent U.S. duty slapped on pickup trucks and work vans built outside North America, 10 times the 2.5 percent
duty on imported passenger vans. It began in 1963 when President Lyndon Johnson imposed the big tariff on European automakers
such as Volkswagen in retaliation for Europe’s attempt to limit U.S. chicken imports.
By removing the rear seats and converting passenger vans into cargo vans after they enter the country, Ford has avoided an
estimated $250 million in U.S. tariffs over the years.
“It’s not simple, but people are doing this, looking for ways get around the tariffs,” Lawrence Friedman, a customs and trade lawyer
in Chicago told the Chicago Tribune. “That is definitely happening.”
Deborah Stern, a lawyer in Miami specializing in trade and customs compliance, said she has been advising clients to carefully
review their product lines.
“There’s plenty of gray area in tariff classifications,” Stern said. “It’s far more of an art than a science.”
Other automakers have taken similar steps to get past the tariff. Chrysler’s Ram ProMaster vans are imported from Turkey as
passenger vans and some are converted into cargo vans in the U.S., a Chrysler representative told The Washington Post. Mercedes-
Benz once built its Sprinter cargo vans in Germany and shipped the chassis separately to be assembled in the U.S. In 2018, Mercedes
began building the entire Sprinter van at a new plant in North Charleston, South Carolina.
The Ford Transit Connect
vans are made overseas and
partially disassembled in the
U.S. to avoid a 25 percent tariff
placed on cargo vans.
May 2019 | ISE Magazine 39
denied by the Department of Commerce’s Bureau of In-
dustry and Security.
Documented compliance policies and procedures.
The company should have a written compliance manual in-
cluding policies and procedures available for all employees
to follow, to be used as a basis for the compliance training
program. The current processes and procedures should be
in the manual. It should be widely distributed and kept up
to date.
Ongoing compliance training and awareness. The
trade world is constantly changing. As international regula-
tions change, so do a company’s needs and requirements.
The company should assess the organizations current train-
ing program and develop a compliance training plan to
avoid being left out of important changes in compliance.
The training should be tailored to the audience and should
focus on the areas of greatest risk.
Pre- and post-export compliance security and
screening. The organization should manage the process
from the first point of regulatory risk through the sup-
ply chain process. The initial determinations should be
accurate (e.g., classification and license determination).
The post-shipment activities (e.g., re-exports, re-imports,
transfers, warranty returns and post entry reconciliation)
should be monitored.
Record keeping. Effective records-retention proce-
dures and easy retrieval are critical for successful record
keeping. If the company makes a mistake, record keeping
can keep it out of trouble. A formal records management
program should be developed and the physical or virtual
locations where records are kept should be identified.
In general, maintaining accurate record keeping helps
companies prevent fines and penalties when U.S. Customs
and Border Protection decides to perform an audit. By law,
companies are required to keep records for at least five years.
Suppose you work for a company exporting parts on a
regular basis to Mexico and Canada. Former NAFTA cer-
tificates are issued every time the parts are shipped. The
certificates from the same year for the same part can be used
throughout the year. Maintaining accurate record keeping
of all the certicates used during the year will help the
company save time by not having to issue a new certificate
every time the part is shipped. Keeping all certificates on
le will also help the company gather the necessary infor-
mation at the end of the year to determine how many dol-
lars have been saved due to the applicable trade agreement.
Trade compliance monitoring and auditing. Com-
pliance audits can help uncover issues and discover vulner-
abilities and potential violations. Companies are recom-
mended to perform audits annually or semiannually to
ensure consistency in compliance practices. It is also rec-
ommended they monitor the audits to discover weak areas
and provide insights into areas that need future auditing.
According to the Sandler, Travis & Rosenberg Trade Re-
port in May 2017, the Court of International Trade assessed
a penalty of more than $691,311.54, plus pre- and post-
judgement interest, to a company importing sugar into the
United States. The shipments of sugar were misclassified
under an incorrect harmonized tariff code. The CIT con-
cluded that the company classication constituted a false
statement. In addition, the misclassication resulted in
$345,655.77 in lost revenue to the U.S. government.
In cases like this, if the company would have conducted
an internal or external audit on a regular basis for all of its
classification codes on file, it could have detected the incor-
rect classication code, reported it to customs and saved lost
revenue and damage to its reputation.
Compliance problems and violations handling.
The company should provide guidance to employees on
how to report violations or suspected violations, and how
to obtain advice on compliance requirements. Policies and
procedures should be addressed in employee compliance
training. The compliance management chain should be
clearly dened and empowered, and appropriate corrective
actions should be documented and taken in response to ex-
port and import violations.
Companies with successful trade compliance manage-
ment programs have incorporated all the key elements
above and have a strong trade compliance management
team with representatives from different areas of the busi-
ness (engineering, legal, purchasing and logistics). Good
compliance is good logistics because it reduces the legal ex-
posure of the company, reduces costs, improves documen-
tation and record-keeping compliance, improves collabora-
tion and communication among different departments in
the company and external partners, increases operational
efciently and reduces adverse publicity.
Diana Berry is a supply chain import/export specialist at Harsco
Rail with an MBA and 13 years of experience in logistics. She was
program chair for the 2018 IISE Annual Conference and founder
of the IISE Sustainable Development and Logistics and Supply
Chain divisions. Berry currently serves as an IISE vice president of
technical operations, general program chair for the 2019 IISE An-
nual Conference & Expo 2019 and as member of the IISE Body
of Knowledge governance committee.
Francisco Ramirez is a logistics manager at Harsco Rail with 20
years of experience in a variety of roles, including transportation
management, warehousing, distribution and customs compliance.
He holds a B.S in international business from the University of
Guadalajara, Mexico, and a Supply Chain Management certifica-
tion from Georgia Tech.