Panelists Urge Auditing Customs Brokers to Prevent Costly Mistakes

"I'm seeing that people are maybe using one of those strategies, but they're not doing the legwork of verifying their information," said Bonnie Kersch, owner and principal consultant of Magnolia Global Trade Solutions, during the Oct. 28 panel discussion, which discussed multiple trade compliance-related topics.

This assurance may come from implementing an auditing regimen of customs brokers that occurs on regular basis, the panelists continued.

"You have to be auditing your brokers and making sure that they're putting in the right information for your products that you're importing," said Lori Shaw, manager of trade compliance for Crown Equipment. "Because if you're not, then you don't know that they're doing what you ask them to do [and] you also don't know what challenges they're having."

Shaw added that she and her team have not only been talking with her company's brokers two or three times a week, but also communicating with people in accounting and engineering.

In developing an auditing regimen, Schulz senior attorney Joshua Rodman said companies should ensure that brokers are applying the proper tariff stacking, in addition to keeping track of issues related to valuation, tariff engineering, first sale and duty drawback.

"We've seen multiple instances of clients bringing their entries to us, and the brokers don't apply the proper tariff stack. A good from China that's subject to AD/CVD could have five or six different tariffs on it, some of which are an exception to another. And so it needs to be closely reviewed," Rodman said.

If companies aren't able to complete a full audit of the customs brokers it employs, they should consider their risk categories or highest value entries and audit those, according to Shaw, citing an instance where a currency conversion wasn't performed, and that discovery eventually led to a $500,000 duty refund on one entry.

According to panelist Jamie Adams, director of global trade consulting for the U.S. for Livingston International, smaller and medium-size businesses may be more exposed to brokers' errors because larger organizations tend to have audit programs already in place. They may also have AI programs that support them, he said.

But smaller and mid-size businesses "don't have that luxury" and error rates for some audits may be as high as 80% to 100%, Adams said. He gave an example of one importer who was importing goods from Canada that were manufactured in Canada. Those goods had some U.S. aluminum in them and there were certificates proving where the aluminum was cast, but the broker put China as the country of origin and a 200% rate for the aluminum, with total tariffs adding up to 315%.

"If you're not checking your brokers, you definitely should be," Adams said. "I mean, yes, it's great to look at all the mitigation out there. And definitely that's a great plan to look at drawback and other things you can do, but start by just auditing and checking and making sure that at least what's being applied is correct and accurate, because they're not just a little bit off. They're ridiculously off."

While audits should be a goal, Adams also urged companies to be patient with brokers because "the system is hard to catch up." Even CBP doesn't "get a lot of headway to get their systems up to pace," Adams continued, referring to comments CBP made at its annual trade summit in New Orleans in May, "and the brokers are behind even that. So have some patience with them. They're doing the best they can in a very complicated environment, but trust and verify. You can no longer assume that they're going to do it accurately all the time."

Companies may be able to help brokers by sending corrections on a 7501 form via email or working with brokers on post-entry reviews, or they should be auditing what's filed in ACE to make sure all the data points match, panelists said. This may be an area where AI could be integrated with operations. Importers should also remember that they are ultimately the ones responsible for the proper classification of tariffs, panelists continued.

Should companies integrate AI into their trade compliance program, they should use technology products that are produced for the trade and can be tailored toward a company's needs, panelists said.

For next order tasks like commodity jurisdiction and classification, "I think you really need specialized AI tools that are specifically built for your company-based processes that pull from your ERP system and other engineering systems, whatever it may be. But there are definitely companies in the space leveraging AI," Rodman said.

He continued, "And the other major takeaway is that there's significant human review of the AI outputs. Even where there's significant time and energy spent on developing these tools, there's still a human backstop."

If companies use AI for these aspects of trade compliance, they should be prepared to "spend the time validating that information, because it can do some really interesting hallucinations," Adams said.

Indeed, panelists cited instances where AI hallucinates customs rulings that don't actually exist because the model is trained to find an answer that satisfies the user.

"It's definitely a tool that's helping everyone, and I think it's an individual experience for each company based on what their needs are, but we never just trust. [We] trust and verify," Shaw said.