The duty of "reasonable care" under the Customs Modernization Act of 1993.

• Author: Kovatch, William J., Jr.

In 1993, major developments occurred in the field of United States international trade law. That year saw the conclusion of the North American Free Trade Agreement (NAFTA), and the passage by Congress of the NAFTA implementing legislation.(1) This legislation accomplished more than just a free trade zone among Canada, Mexico, and the United States. The NAFTA implementation legislation radically altered the distribution of responsibilities between the United States Customs Service (Customs) and the importing community.

Included in the NAFTA implementation legislation is Chapter VI, the Customs Modernization Act (Modernization Act).(2) This Act impacts all transactions involving the importation of merchandise into the United States, not just importations from Canada and Mexico.

The Modernization Act stemmed from the perception that Customs procedures were inefficient, and unable to manage the expected increase in the flow of international trade. Specifically, Customs' reliance on paper documentation was viewed as cumbersome. The Modernization Act was intended to create a statutory framework to allow electronic filing of documents.

While the Modernization Act was intended to create a more convenient system for both Customs and importers, the act effectively placed greater responsibility on importers. Specifically, the Modernization Act imposed the duty of "reasonable care" on importers in declaring the proper classification and value of goods imported.(3) Further, the Modernization Act granted Customs a greater ability to ensure compliance with this duty.

The concept of reasonable care, as applied to an importer when making a declaration upon entry of merchandise, is in its infant stages as the United States Court of International Trade has yet to address the issue. Nonetheless, guidance on how to interpret reasonable care can be found from other areas of the law that impose a duty of reasonableness. Indeed, the legislative history of the Modernization Act, as well as subsequent Customs publications, indicate that reasonable care should be interpreted consistently with the duty of reasonableness as applied, generally, in other legal fields.

This article analyzes the duty of reasonable care as created by the Customs Modernization Act. Part I explains the legislative history of the Act by examining the importation process prior to the Modernization Act, and the perceived need for change. Part II discusses the provisions of the Modernization Act. Part III examines how Congress and Customs have interpreted the duty of reasonable care. Part IV analyzes the duty of reasonableness in other areas of the law, and concludes that reasonable care under the Modernization Act appears to be following a consistent path.

The Modernization Act changed the way that importers and Customs operate. It has imposed greater responsibilities on the importing community. Like all changes, it has been met with some resistance. By following Customs' published guidelines and becoming familiar with the general duty of reasonableness, importers can discern what is required under this new system, and take steps to ensure compliance with the duty of reasonable care.

1. LEGISLATIVE HISTORY

   Prior to the Modernization Act, the process of importing merchandise could be very cumbersome and paper intensive.(4) An importer had to submit a form to Customs summarizing information relevant to the determination of the classification, value, and origin of the goods.(5) In addition, the importer would have to submit various supporting documents.(6) Customs had the responsibility of determining the proper classification, value, and origin.(7) Customs would not release the goods without proper documentation.(8) Further, the entry forms and documentation had to be filed at the port where the goods entered the United States.(9)

   This process strained the resources of Customs. To relieve the problem, Customs implemented various automation programs during the 1980s and 1990s that provided for electronic transmission of the required information.(10) However, Customs had no statutory authority to establish these programs. Rather, the statutes continued to require the submission of paper documents.(11)

   A concern arose due to the expectation that international trade would increase dramatically. During the late 1980s and early 1990s, the United States was involved in the negotiation of two major international trade agreements: the Uruguay Round of the General Agreement on Tariffs and Trade, and NAFTA. Senator Orin Hatch observed that trade was growing "at an unprecedented rate, one that will accelerate still faster with the adoption of the North American Free-Trade Agreement."(12) Government officials strove to ensure Customs had "the adequate capacity to process the expected increase in import and export activity,"(13) and to "greatly enhance the efficient operation of our import and export system."(14)

   On June 7, 1991, Representative Philip Crane introduced a bill to the House of Representatives in the 102nd Congress titled the "Customs Modernization Act of 1991."(15) This bill aimed, in part, to eliminate much of the paperwork involved in importing goods by providing for electronic processing of customs transactions.(16) The Customs Modernization Act of 1991, along with a bill titled the "Customs Informed Compliance and Automation Act of 1991",(17) was submitted to the House Ways and Means Committee. No further official action was taken on either bill.

   The push to modernize the Customs Service was renewed in November 1991, when Representative Sam Gibbons(18) introduced a bill titled the "Customs Modernization and Informed Compliance Act."(19) After being submitted to the Ways and Means Committee, the bill was incorporated into another bill, titled the "Trade Expansion Act of 1992,"(20) introduced by Representative Dan Rostenkowski.(21) Like the Customs Modernization Act of 1991, this bill was meant to provide for full electronic processing of all customs transactions,n Representative Rostenkowski stated that the bill "improves and clarifies Customs enforcement authority with respect to submission of documentation, recordkeeping and examination procedures and penalty and seizure provisions."(23) The House of Representatives voted to approve the Trade Expansion Act of 1992 on July 8, 1992.(24) The bill was then introduced to the Senate.(25) However, no further official action was taken on the bill.

   The Customs Modernization and Informed Compliance Act did not completely die at that point in the 102nd Congress. Rather, it was incorporated into another bill, entitled the "Revenue Act of 1992".(26) The Revenue Act of 1992 mainly sought to provide tax incentives for the establishment of enterprise zones.(27) This bill passed in both houses of Congress(28) but President George Bush vetoed the legislation.(29)

   In 1993, both houses renewed their push to pass legislation to reform Customs. Representative Gibbons(30) and Senator Hatch(31) introduced identical legislation in their respective houses. However, the legislation met with opposition from portions of the customs brokers community. The National Customs Brokers and Forwarders Association of America, which had supported Customs modernization legislation in 1992, announced its opposition to the Customs Modernization Act of 1993.(32) Specifically, the organization opposed the enactment of remote filing, fearing that this change would be harmful to the small customs brokerage firms.(33) This organization believed that the cost of modernizing would be prohibitive to small brokerage firms, giving the advantage to larger firms.(34) These fears were echoed by the San Francisco Customs Brokers and Freight Forwarders Association, who also opposed the legislation.(35) Thus, the support for Customs modernization began to erode in 1993.

   In 1993, however, the Clinton Administration finished negotiating NAFTA with Canada and Mexico. The President still possessed Fast-Track authority for trade agreements,(36) therefore, the President could submit legislation to implement NAFTA to Congress, and Congress could only vote to accept or reject the legislation as submitted.(37) Congress could not amend the implementing legislation.(38)

   With this authority, the President included the Customs Modernization Act of 1993 in NAFTA implementation legislation. Congress approved the NAFTA legislation, thereby passing Customs reform.

2. PROVISIONS OF THE CUSTOMS MODERNIZATION ACT

   The Customs Modernization Act of 1993 significantly altered the process of merchandise entering the United States.(39) In essence, the Modernization Act reduced the amount of documents an importer had to file. In return, however, the importing community assumed greater responsibilities in the process. This exchange of duties between Customs and the importer has been called a "shared responsibility."(40)

   The Modernization Act established a program of automation by allowing electronic processing of customs related transactions.(41) This feature of the Modernization Act is known as the National Customs Automation Program,(42) and allows importers to file their entry of merchandise electronically.(43) In addition, importers may make their payments of duties, fees and taxes electronically.(44)

   The Modernization Act further eliminated the requirement that all entry documentation be filed in the port of entry. Rather, an importer may utilize "remote location filing."(45) Under this program, a participating importer "may file electronically an entry of merchandise with the Customs Service from a location other than the [port] designated in the entry of examination."(46) This program provides importers with greater convenience.

   While the Modernization Act made it easier for an importer to file entry documentation, Customs required some assurance of the reliability of the information provided. To this end, the Modernization Act imposed the duty of "reasonable care" on...