The fast and efficient movement of goods is a hallmark of the modern global supply chain. In fact, it is often an expectation, with contractual commitments dependent on the timely and problem-free delivery of goods to the destination country. If unexpected costs or unreasonable delays occur, importers can find themselves liable to customers or beneficiaries, resulting in reduction or even elimination of anticipated revenue. One area of particular importance for importers is the customs clearance and assessment process, which is often one of the last but most critical phases of the global supply chain.
Importers, regardless of their experience or sophistication, have a duty to understand and comply with all applicable laws and regulations for the importation and classification of goods sent from other countries. While Thailand, like many countries, is a member of the World Trade Organization (WTO) and is obliged to adhere to WTO guidelines for the valuation and classification of goods. It also has its own regulations, policies, and customs laws that provide a legal framework for customs assessment challenges by importers. Often, importers or their agents can effectively process and clear goods with the assigned customs officials without encountering any issues. However, disputes do inevitably arise, often relating to origin, classification, and duty assessment. If not addressed early, a dispute can escalate, leading to seizure of goods, posts of guarantees, final assessments by customs authorities, and even allegations of civil or criminal wrongdoing. At such an advanced stage, it may be too late to engage in consultation to achieve a dispute settlement.
Instead of risking such a predicament, importers seeking to resolve disputes with customs officials should explore pre-assessment consultation opportunities. At this stage, there remains flexibility in approach and time to consult with customs officials, make submissions, and consider a flexible settlement. If this critical time passes and Thai customs issues an official assessment letter, options for an importer who wishes to challenge customs assessment will be severely limited.
In this first article in a two-part series on customs dispute resolution, we focus on pre-assessment consultation procedures and consider how importers can significantly reduce risks and liabilities by taking proactive steps to resolve any issues.
Letter of Assessment
To better understand the benefits of pre-assessment consultation and to appreciate the opportunity available to importers in disagreement with customs authorities, it is first important to understand the implications of an official letter of assessment. Normally, official letters of assessment are issued well after the period of importation and after Thai customs has conducted an initial audit and made duty or classification assessments. If there is a disagreement about this initial (or preliminary) customs assessment, an importer or its representative may defend its position, accept the preliminary assessment, or otherwise reach a negotiated settlement with customs. If no action is taken or a resolution of the dispute is not possible, Thai customs will issue an official letter of assessment.
Once this official assessment letter is issued, discretion in settlement is gone and only the full value of assessment will be accepted. Consultation opportunities in support of the importer’s arguments are no longer available, and the only remaining recourse is an official challenge with the Customs Board of Appeals or with the Thai courts—and only after the importer posts appropriate security based on the official customs assessment. Furthermore, under Thai law there may even be a risk of criminal claims brought by or through the Department of Special Investigation against the importer and its representatives. This risk is significantly lower if a matter is addressed at the pre-assessment stage.
When a dispute arises with Thai customs, it is critically important that the dispute be addressed early, since this provides time to engage customs officials, educate them on the importer’s position, and provide supporting documentation. It is also the only reasonable opportunity to consider an official negotiated settlement with customs. While the law does not provide a specific timeline for this consultation process, it should begin promptly to ensure that Thai customs is engaged and not moving toward issuance of an official assessment letter. If parties are engaged and are making progress in consultation, issuance of an assessment letter is less likely. However, if the law requires filing of a claim within the applicable prescription period for an offense (e.g., 10 years from the date of importation for matters involving duty declaration), customs officials may have no choice but to move ahead with official assessment in order to preserve its right to claim under Thai law.
Consultations with customs officials usually follow an initial audit by the assigned customs inquiry officer. If there are concerns about qualification for duty benefits under free trade agreements or if customs authorities believe there has been a classification error or under-declaration of duty, customs will advise the importer via official notice, often with a request to appear before customs. This is the beginning of the post-dispute consultation process and is an opportunity for an importer or its representative to explain its position and to otherwise convince the customs authority of why there is no violation of customs laws.
Customs authorities might make specific requests for supporting documentation from an importer. Such documentation, if available, might confirm the customs authority’s position or may serve to support an importer’s defense against customs dispute inquiries. It is important that any request for documentation be carefully considered so the importer can make a measured, but responsive, submission. This can both support the importer’s position and demonstrate good faith to the customs authority. This is an important factor in resolution of a dispute, whether through successful proof of the importer’s defense or through discretionary settlement.
Even if the customs authority has not requested information, it may be in the importer’s best interest to submit clarification of its legal position to the assigned customs inquiry officer. This can be anything from issue-based explanations via a simple letter to more detailed position statements explaining the importer’s legal position on valuation or duty exemptions. The level of complexity usually depends on the particulars of the case and customs’ understanding of the issues in dispute. This might involve a single submission or even multiple ones over the period of consultation, supported by in-person discussions on the issues addressed. Through this approach, carefully prepared, good-faith submissions of legitimate legal positions may lead to customs accepting the importer’s declarations. Sometimes, however, it is simply not possible to obtain customs’ acceptance of the importer’s declarations, in which case a focus on possible discretionary settlement may also be considered.
Customs settlement guidelines issued and updated by the director general of Thai Customs in 2017 permit settlement of active customs disputes. They also provide the customs authority with discretion in determining a negotiated settlement, subject to approval by the responsible customs settlement committee. When a dispute with customs cannot be resolved with measured, good-faith consultations and submissions, settlement may be the last viable option before issuance of a formal customs letter of assessment. Settlement at anything less than the full amount of the customs assessment is simply not possible once the customs authority has issued a letter of assessment. By consideration of settlement options at the consultation stage, it may be possible to avert an unfavorable assessment, resolve a dispute, and avoid costly and uncertain litigation with the Customs Board of Appeals or with the Thai court.
The most effective strategy in negotiation typically involves good-faith consultation and submissions in support of a negotiated settlement. Depending on the specifics of a given dispute, this may involve multiple consultations and submissions over time before arriving at a value approved by both the customs inquiry official and the settlement committee. If approved, the settlement represents a final resolution of the dispute.
The efficient movement of commercial goods is a critical component of the modern supply chain, and millions of goods cross borders every day without issue or dispute. When a dispute does arise, however, it can have a financial knock-on effect on multiple contractual players, leading to uncertainty and potential liabilities. For importers faced with customs disputes it is critically important that they and their representatives promptly and strategically assess their legal position and engage in focused consultation efforts with the relevant customs authorities. Depending on the particular case, consultation may lead to resolution of the dispute entirely or to a negotiated settlement, eliminating the uncertainty and cost of protracted litigation of customs claims.