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Risk Assessment of Customs Brokerage Operations

LAST February 21, 2003, we made a presentation at the Century Park Hotel before the National Assembly of the Chamber of Customs Brokers, Inc. (CCBI) on the “Latest Developments of the Post Entry Audit (PEA) system and its Implications on Customs Broker Operations”.

Given the recent issuance of Executive Order No. 160 (Creating the Post Entry Audit Group), the presentation was both very timely and relevant. For the past months, stakeholders in the so-called “gateway” community have been waiting with bated breath on how the PEA system will slowly unfold and be implemented. For most customs brokers, the foremost question that they had wanted to ask was how this new system will likely affect their operations.

Record Keeping and PEA systems. To understand how the PEA system will impact on customs brokers, we have to assess the current customs regulatory environment. For the last decade, the rules governing international trade, tariff and customs have become more complicated. Three years ago, the rules on Customs Valuation, the PEA system, the Record Keeping system and the AFTA-CEPT were either non-existent or were just starting to be implemented.

As seen in more developed countries, we foresee that these changes will likely result in higher rates of non-compliance. Many companies will find itself non-compliant not because there is intent to defraud but simply because of poor understanding and knowledge of the new rules.

Implications on Customs Broker Operations. Given the growing complexity in the trading environment, what we have recently noticed these past months is that many companies have started to take greater control of their importing activities. Some companies have initiated an assessment of compliance levels given the requirements of the Record Keeping and PEA systems. In some of these cases, the compliance assessment of import activities included customs brokers operations.

As a proactive step, many companies have now included “quality assurance” and “integrity” as part of the criteria when bidding out their customs brokerage requirements. In other words, it is no longer enough that goods are released from customs custody within established timelines; the release must also be done in a compliant manner.

Challenge for Customs Brokers. Most of the responsibilities under the new rules now rest with the importer. Among these responsibilities are as follows:

  1. Ensure proper declarations in the Import Entry and SDV;
  2. Keep business records and information as required by customs; and
  3. Pay correct taxes and duties.

Under the Record Keeping and PEA systems, the penalties for not properly performing the above responsibilities will primarily rest with importers. In reality, however, customs compliance has always been outsourced to customs brokers. Since the beginning, importers have always relied on customs brokers not only to process the release of imported goods from customs custody but also to resolve disputes involving valuation, classification and other technical issues. In other words, customs brokers have always acted as the customs and trade advisers of the importers.

The challenge for customs brokers now is whether they are still willing to act as customs and trade advisers notwithstanding the growing complexity of the rules and the possible stiff penalties that may apply to importers in case of error in the advise given. Customs brokers have to likewise realize that any misjudgment on their part may have huge financial impact on the company and may result in the company taking action against the former to recover whatever damage caused.

Preparing for PEA. In recent months, the Bureau of Customs (BoC) has reportedly been reviewing VAT and duty payments to customs using information from various sources. As a result several companies, both local and multinational, have been assessed with underpayments amounting to millions of pesos.

Most of these additional assessments resulted from patent errors in the declarations to customs. For some of the companies, however, under payments resulted from malpractices of customs broker staff resulting in diversion of funds originally intended for payment to customs.

The new rules require greater corporate responsibility and accountability for compliance with customs rules. Companies in turn continue to demand that customs brokers not only perform importing processing services but also provide customs and trade advisory services. Customs brokers, on the other hand, ran the risk of being the subject of court actions in case of negative findings resulting from a customs audit.

The recent developments in the customs front, particularly the establishment of the PEA system, certainly have tremendous impact on customs broker operations. From a business and risk management perspective, customs brokers will have to review their relationship with their clients and ensure that the roles, risk and responsibilities of the parties involved are well defined.

Specifically, it will have to make clear whether existing brokerage rates automatically encompass trade and customs advisory services over a whole range of import related issues. A basic understanding of the scope of customs brokers services should prevent any future issues between the customs broker and the importer particularly in case the BoC audits an importer and there is a finding of underpayment.

The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at and 


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