Insights

With U.S. trade policy constantly evolving and Customs enforcement increasing, importers face more pressure than ever to ensure customs compliance from the beginning. One misstep – whether it is a misclassified product, an incorrect origin declaration, or a mistaken claim under the United States-Mexico-Canada Agreement (“USMCA”) or any other preferential treatment claim– can lead to costly penalties, shipping delays, and harm to your company’s reputation. U.S. Customs and Border Protection (“CBP” or “Customs”) adopts a strict approach to enforcement related to product classification accuracy and origin eligibility that requires importers to be vigilant in their compliance efforts. This guide outlines the most common mistakes importers make and how they can be avoided to maintain smooth trade operations and a clear supply chain.

I. Verify USMCA Eligibility: Not Everything from Mexico or Canada Qualifies

A widespread misconception among companies is that any product imported from Mexico or Canada qualifies for duty-free treatment under the USMCA. This assumption is inaccurate and can lead to significant import compliance issues and possible fines or other enforcement by CBP. Eligibility under USMCA is governed by strict and highly technical Rules of Origin outlined in Chapter 4 and Annex 4-B of the USMCA. Under these rules, a product must meet specific criterion to be deemed “originating” and qualify for preferential tariff treatment under the USMCA.

In general, goods from Canada and Mexico that are made with inputs that do not originate from a USMCA country must have undergone a (1) tariff shift during final stages of production in Canada or Mexico and (2) meet Regional Value Content (“RVC”) thresholds that require a certain percentage of the final product’s value to consist of inputs that originate from a USMCA country.

• Tariff Shift: Requires that inputs from non-USMCA countries undergo a change in tariff classification under the Harmonized Tariff Schedule (“HTS”) so that the final product is classified under a different HTS code compared to the original inputs. The tariff shift requirements vary depending on the HTS code classification of the final product as set forth in Annex 4-B of Chapter 4 of the USMCA.

• Regional Value Content: Requires a certain percentage of a product’s value to originate from a USMCA country. The RVC percentage requirement will typically differ depending on the HTS code classification of a final product. Like tariff shift requirements, Annex 4-B of Chapter 4 of the USMCA sets forth the product-specific RVC requirements for relevant final products. Calculation of a product’s RVC can be a tedious process as it typically entails making a list of all production inputs with country of origin information and careful calculation utilizing one of the formulas (i.e. the “net cost method” or “transaction value method”) set forth in Article 4.5 of the USMCA.

Incorrectly claiming USMCA benefits without satisfying Rules of Origin criteria can result in audits, retroactive duties, and penalties. Thus, it is important for importers to carefully review USMCA eligibility requirements and seek guidance from experts when necessary to reduce compliance risks.

II. Don’t Undervalue Products

Undervaluation is among the most common red flags in trade fraud investigations. Some importers, whether intentionally or due to misunderstanding, declare values below the actual transaction price to reduce customs duties. This practice violates U.S. customs law and invites enforcement action by CBP.

U.S. law recognizes six valuation methods under 19 U.S.C. § 1401a:

1. Transactional Value (the most commonly used),

2. Transactional Value of Identical Merchandise,

3. Transactional Value of Similar Merchandise,

4. Deductive Value,

5. Computed Value, and

6. Derivative methods when others are inapplicable.

The Transactional Value method – defined as the price actually paid or payable for merchandise when sold for exportation to the U.S. – is the preferred, or default valuation method. Importers must ensure this value includes any required additions, such as packing costs, assists, royalties, and proceeds. Inaccuracies can result in penalties and heightened CBP scrutiny. Importantly, importers that import from related parties will face higher scrutiny when declaring transaction value.

III. Don’t Assume Transshipment Changes Country of Origin

One of the most common, and costly, misconceptions in trade compliance is the belief that simply routing goods through a third country can alter the country of origin of such goods. This is especially problematic when companies seek to avoid tariffs or quota restrictions by diverting shipments through alternate countries before they reach their final destination for import. Such practices are not only unlawful but also attract serious regulatory attention and, in the case of antidumping or countervailing duties (AD/CVD) evasion, may result in investigations under the Enforce and Protect Act (“EAPA”), potentially leading to civil penalties or even criminal referrals.

Under U.S. customs law, determining the country of origin for a variety of purposes such as eligibility for country of origin marking, admissibility, preferential trade programs, drawback of duties, American goods returned, depends on where the product last underwent a substantial transformation – a process that changes the product’s name, character, or use. But generally, simply repackaging or routing goods through another country without actual manufacturing or processing that meets this legal threshold does not satisfy origin rules. As outlined in 19 C.F.R. § 134, origin declarations must reflect the true country of transformation. Further, 19 U.S.C. § 1517, which governs the EAPA, authorizes CBP to take measures, including on-site verifications and interim enforcement actions, when country of origin evasion to circumvent AD/CVD duties is suspected.

To avoid transshipment violations, importers should ensure that any declared country of origin is supported by legitimate manufacturing activity. This includes verifying that a substantial transformation has occurred and maintaining clear documentation of processing activities across each location in the supply chain. Companies should conduct routine audits of import documentation, including invoices and certificates of origin, to ensure consistency with actual production records. The substantial transformation review is conducted on a case by case basis based on a variety of factors, so complexity in conducting these reviews abounds.

In addition, it is essential to review supplier practices, especially if there are sudden changes in routing or origin claims following the imposition of new tariffs. Internal compliance training is also crucial to help staff recognize red flags and avoid reliance on faulty supplier information.

IV. Don’t Change HTS Codes Without Expert Review or Solid Evidence

The HTS classification of a product is not a marketing tool or a negotiable figure. Instead, it is a legally binding determination that governs the rate of duty and the regulatory treatment of imported goods. Nonetheless, some importers (often under pressure from sales teams or international suppliers) attempt to reduce tariffs by changing a product’s classification without legal justification. This practice can backfire dramatically.

HTS codes must be assigned based on a thorough analysis of the General Rules of Interpretation (GRIs), chapter notes of the U.S. Harmonized Tariff Schedule (“HTSUS”), and applicable CBP rulings. Importantly, U.S. law places the burden of correct classification on the importer of record. Even when a supplier or a customs broker provides a suggested HTS code, it is the importer who is liable for any resulting errors. Misclassifications, whether inadvertent or intentional, can result in audits, monetary penalties under 19 U.S.C. § 1592, and in some cases, seizure of goods or criminal investigation.

To ensure accurate classification, importers should develop and follow an internal process grounded in Customs law requirements. This includes referencing GRIs and legal notes relevant to the specific product in the HTSUS and not relying solely on supplier suggestions. When classification uncertainty arises, importers can seek out Customs experts such as Customs attorneys or request a binding ruling from CBP.

Equally important is maintaining HTS classification supporting documentation. This includes detailed product specifications, internal memoranda explaining the chosen HTS code, and, where applicable, third-party expert opinions. Such documentation helps demonstrate good faith and due diligence in the event of a customs audit i.e., establishing the importer’s “reasonable care.”

Ultimately, treating classification as a legal obligation, not a business convenience, ensures that companies avoid costly penalties and maintain the integrity of their trade compliance programs.

Conclusion

Customs compliance is not just about ticking boxes—it’s about building a legally defensible position in every import transaction. With enforcement rising and audit risks increasing, companies must take proactive steps to ensure that their USMCA claims (or any other preferential claims), valuation declarations, origin markings, and HTS classifications can withstand scrutiny. By following the practices outlined above, importers can reduce risk, maintain supply chain reliability, and avoid costly enforcement actions.