CBP Reposts 2008 Compliance Info on GSP Regulatory Audits

U.S. Customs and Border Protection has reposted a 2008 Regulatory Audit¹ document that provides general compliance information for importers claiming benefits under the Generalized System of Preferences (GSP) program ². The document informs importers of the basic requirements of the GSP program and provides guidance on how to begin to structure a system of internal controls that addresses the regulatory requirements for substantiating GSP claims.

(See ITT's Online Archives 08051505 for summary of this information when it was previously posted in May 2008.)

Highlights of the reposted document include the following:

Support Needed for Claims Must Be Readily Accessible

The documentation necessary to substantiate a GSP claim must be kept readily accessible should CBP request it and must be retained for a period of five years. An inability to produce the required records will result in disallowance of GSP preference. The recordkeeping requirements for GSP claims are outlined in 19 CFR 10.171 through 10.178 (available here). Additionally, the Customs Informed Compliance Publication (ICP) on GSP gives examples of the types of records that may be requested. CBP states that this information is especially important to importers whose GSP importations are subject to a review through a Compliance Assessment or other audit review by CBP Regulatory Audit.

CBP states that importers should establish internal controls that identify and gather records to support GSP claims. There are two primary factors to be addressed: the origin of the product and its value.

• Product origin -- The origin of articles must be supported by documents obtainable by the importer, and may include trip reports, site visits, quality assurance reports, and health, safety, and origin certificates prepared by government officials of the beneficiary developing country (BDC). Additional evidence may be required to substantiate the manufacturing origin of articles that are the product or manufacture of the BDC, such as raw materials purchases, proof of factory labor, support for manufacturing overhead, etc.
• Product value -- In addition to BDC manufacturing costs, articles may require evidence of the foreign manufacturing costs, such as product specifications, bill of materials, product cost sheets, payment records, overhead allocation schedules, raw material purchases, proof of factory labor, and support for manufacturing overhead. Production records must establish the value of the BDC materials used in the imported article on a lot by lot, batch by batch, shipment by shipment basis. Materials imported into a BDC may be included in the value-content requirement only when they undergo a double substantial transformation.

Common Importer Errors Include Inability to Produce Records, Etc.

According to CBP, since 1997, 66% of all companies that have had compliance assessments that included a separate GSP sample (GSP claims exceeded the $10 million dollar threshold) have been unable to substantiate their GSP claims.

The most common errors include:

• the inability to produce records to support the 35% minimum value content provision;
• the foreign manufacturer commingled materials purchased from both BDC & non-BDC suppliers and the importer is unable to identify when non-BDC components were used in an imported article;
• U.S. Goods Returned is erroneously claimed as imported GSP articles;
• GSP articles are erroneously classified and when properly classified, are not eligible for GSP;
• the articles originated in a GSP ineligible country;
• the imported product did not undergo a double substantial transformation as claimed; and
• the importer could not evidence direct shipment of the product from the BDC to the U.S. when the shipment entered an intermediate country en route to the U.S.

Document also Provides info on Compliance Assessments, Internal Controls, Etc.

See CBP's document for additional information on the GSP program, compliance assessments, internal control questions, details on support needed for claims, and other topics.

¹Regulatory Audits are risk-based approaches to assess import compliance with trade laws and regulations. The audit reviews provide a systematic approach to data collection and an analysis of data to determine the likelihood of noncompliance, which includes assessing risks by reviewing corporate controls over trade compliance.

²GSP is a program that provides duty-free treatment for certain products originating from beneficiary developing countries (BDCs). These products must be wholly grown, produced, or manufactured in the BDC and at least 35% of the product's dutiable value, upon entering the U.S., must be from costs directly attributable to the BDC.