NAFTA is a treaty between the United States, Mexico, and Canada that pertains to trade and movement of goods. It enables free trade between these countries making it the largest free trade agreement in the world. It eliminated trade tariffs between these countries paving the way for more investments and business opportunities between the parties.
With the flow of investments and goods happening between countries, the chances of discrepancies are immense. For example, for an ongoing trade, numerous variables pertaining to the goods will not be known until the closing period of the account. So it becomes very hard to compute the price adjustments that are added to the fair price of the goods. so how will we compute these varying prices and get everything in records?
What is Reconciliation and what led to its inception?
In essence, it is a method by which the importer can correct the prices on a commodity post entry summary.
This is why Reconciliation is introduced. In 1993, a new act called the Modernization Act (Mod Act) was passed that takes in factors like “Shared responsibility” and “Reasonable care.” With the reconciliation process, it allows future submission of indeterminable information to the CBP to enhance the entry summary process. The reconciliation process was named the ACS reconciliation prototype and later renamed to ACE Reconciliation Prototype. The ACE reconciliation was published on February 6, 1998.
With Reconciliation, the importer can file entry summaries with CBP with reasonable care. The filing is done under the mutual understanding that certain variables such as declared value will remain in an outstanding state. And after a later date, the importer again files a Reconciliation that states the final and correct information. Then the Reconciliation is liquidated using refund or single bill, as needed.
Importance of Reconciliation
From October 1, 1998, the exclusive way to reconcile entries was using the ACS Reconciliation prototype. The local block liquidation produces that was a norm until then was completely parched. Therefore, importers and brokers must be well versed in the term of the ACS reconciliation to trade within the legal norms.
It is expected that Reconciliation shall be used by importers who make periodic cost adjustments in the price of imported goods or have additions to the value of imported goods (assists or additional payments) that are not known at the time of import.
Customs has also indicated that reconciliation is available for importers with classification issues before Customs, and as a vehicle for importers to file post-entry, NAFTA claims.
Reconciliation is also available for importers who wish to make a 9802 claim for U.S. origin goods assembled abroad, but do not have sufficient information at the time of entry to assert a complete claim.
According to Customs, the new procedure was needed because of a lack of uniformity by Ports with respect to other procedures intended to reconcile entry information.
Why do we need to be careful about NAFTA Reconciliation?
Under previous practices, importers had to notify Customs at the port of entry that information contained therein was incomplete, and request that liquidation of the entry be extended pending submission of the correct information. The importer would then submit a detailed cost submission and reconciliation report (generally, for the previous fiscal year), and Customs would apply the valuation adjustment to a few representative entry summaries. (Customs considered it too time-intensive to manually adjust each entry based on the final cost submission.)
This process, however, is considered inadequate because it does not sufficiently allow for, and properly allocate, decreases or increases in value to all of the articles imported during the period covered by the cost submission. It also presents significant legal problems for Customs and importers if the importer later wishes to contest the final computation of valuation determined by Customs to apply or to claim drawback on the new amount. The block method is also inadequate because the adjustment is not made to each applicable line item of merchandise on an entry affected by the cost revision, a process which most Ports refuse to do because it is too time-consuming.
Other methods of adjusting entries include voluntary tenders, prior disclosure, Supplemental Information Letters, protests, and 520(c)(1) requests, all of which have significant limitations in their applicability to reconciliation.
The key to the ACS Reconciliation process is that the entry filer must know in advance of filing the entry that it will need to be the subject of reconciliation. Then, when the filer electronically files the entry, a special heading designation is to be used that will electronically “flag” the entry for reconciliation.
There are two options in filing for reconciliation: the Entry-by-Entry Method, and the Aggregate Basis Method. While the aggregate basis method may involve less work, there are significant limitations.
Customs expects importers to use the new ACS reconciliation procedures whenever there are unresolved issues regarding NAFTA eligibility and valuation. In addition, reconciliation offers importers interesting alternatives to resolving classification issues short of filing protests.
Reconciliation, however, requires that importers be aware of Customs issues before the merchandise is entered, and to address those issues at that time.
According to Customs, entries flagged for reconciliation must be reconciled even if the reconciliation results in no change in duties. However, merely because an importer has assisted, it does not mean that reconciliation is necessary. Reconciliation is only necessary if the exact value of the assist is unknown at the time of entry. If the importer is sure that all appropriate charges are included in the declared value, then the entry does not need to be flagged for reconciliation.
Importers who make year-end cost adjustments in the price of imported goods with suppliers, use transfer pricing between related parties, or have additions to the value of imported goods (assists or additional payments) that are not known at the time of import need to take a close look at how the new ACS reconciliation procedure will affect their imports, particularly with respect to how reconciliation will be performed (entry-by-entry or aggregate method), and the effect of that choice on the importer’s ability of obtain a refund of estimated duties paid.
Leave the hard work to us!
Our team at Pedraza Customhouse Brokers have been helping clients in their NAFTA Reconciliation for over 10 years now. Since the process of Reconciliation is a very arduous one, it takes quite a lot of money and time if you are not familiar with the workings and procedures. With our propritary advanced software we can, what once took weeks if not months to process, process your NAFTA Reconciliation in almost real time.
We will take care of the things from your end and ensure a smooth billing process for your company. With us, you won’t have to worry about pending or incorrect reconciliation anymore!