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PRESS RELEASE

Date: 18th November 2016

Title: US Importers: Changes to the Reconciliation Entry Program Set for for January 2017

Significant changes to the Reconciliation Entry Program are scheduled to soon take
effect. Included among these changes are the elimination of blanket entry flagging, a
simplification of the application process and changes to the reconciliation transmission
procedures. It is imperative that importers and their customs brokers utilizing the
reconciliation program understand the impact of these changes in advance of their
implementation.

As part of its transition from the Automated Commercial System (ACS) to the
Automated Commercial Environment (ACE), U.S. Customs & Border Protection
(CBP) has announced changes to the way in which importers will file reconciliations
and CBP will process them. CBPs current target date for the modifications to become
effective is January 1, 2017.

As discussed below, the most immediate change for current reconciliation participants
relates to the way CBP entries will be identified, or flagged, for reconciliation. CBP will
no longer automatically blanket flag entries for reconciliation. Instead, importers will
be responsible for flagging their own entries. Therefore, it is critical that
reconciliation participants coordinate with their customs brokers to ensure that
any entry subject to reconciliation reporting will be appropriately flagged by the
broker. Brokers (and self-filers) will need to either manually flag each entry summary or
program their own software to perform blanket flagging.

Additional modifications announced by CBP include changes to the way new

participants will join the reconciliation program and the manner in which reconciliation
entries will be filed.

Background

Now in its eighteenth year, CBPs reconciliation program is used by importers to report
financial adjustments, including year-end transfer price adjustments, assists, and
dutiable royalties (as well as other information relevant to the valuation of merchandise)
to CBP after the entry summary has been processed. Prior to reconciliation, importers
were required to provide this information via prior disclosure or similar ad hoc reporting.

Under the reconciliation program, the flag (notice of intent) identifies that there are
issues to be reconciled later, which are separated from the entry summary so that the
entry may otherwise be finalized and liquidated. The flag indicates to CBP that a
specific data element on the entry summary (e.g., entered value) is not final at time of
entry and is subject to future adjustment. Importers have up to 21 months to file a
reconciled entry summary (12 months for certain FTA claims). The reconciliation is itself
an entry and after CBP review, the reconciliation entry itself will liquidate, with the
reconciliation resulting in a single refund or payment of duties, taxes and fees, as
appropriate.

Importers may use reconciliation to seek post-entry section 520(d) refunds under the
North American Free Trade Agreement (and certain other FTAs), to report changes
relating to merchandise imported under Heading 9802, and to report valuation issues,
including but not limited to upward and downward transfer price adjustments.1 With
respect to tariff classification, an importer may use reconciliation if it has separately
established the classification issue by means of a protest, pending administrative ruling,
or pending court action.

Modifications to the Program Announced by CBP

Starting on or about January 1, 2017, CBP will implement the following modifications
relating to the filing of reconciliation entries designed to further automate the process
and remedy existing problems with the program. Those changes include:

Application Process New participants will no longer need to apply to CBP

Headquarters to join the program. Instead, interested importers will simply need to (1)
have a continuous bond on file (single transaction bonds are not allowed); (2) file a
reconciliation bond rider; and (3) begin flagging entries for reconciliation.

Entry Flagging As noted above, CBP will no longer blanket flag entries. Instead,
importers will be responsible for flagging their own entries. Customs brokers (and self-
filers) will need to either manually flag each entry summary or program software to
perform blanket flagging.
 Reconciliation Transmission Reconciliation entries will be submitted electronically
only in ACE and will not be accepted in ACS. Further, a hardcopy of the line item
spreadsheet on disc will no longer be required.

Reconciliation Reporting In what CBP expects to be an improvement over the old

system, ACE will automatically populate the original value, duties, taxes, and fees
relating to the underling entries covered by the reconciliation. Importers will be
responsible for reporting the reconciled amounts, as the original entry data will be
pulled automatically from the associated underlying entries covered by the
reconciliation. CBP has also added a number of program indicators to the reconciliation
transmission, requiring importers to provide certain additional information when
transmitting a Type 9 Reconciliation Entry (for example, CBP has added fields to
indicate whether a prior disclosure has been filed against one or more of the flagged
entries covered by the reconciliation and to indicate the relevant protest number,
administrative ruling number, or court action number, when the reconciliation relates to
a classification issue, etc.).

ITRAC Reports CBP will no longer issue Importer Trade Activity (ITRAC) reports
detailing an importers entry activity on an entry line-by-line basis. Instead, ITRAC
reports will be replaced by ACE reports.

Certain elements of ACS Reconciliation will remain the same once CBP transitions to
ACE Reconciliation, including:

the types of issues subject to reconciliation (e.g., value, certain classification issues,
9802, and FTA issues);

the deadlines for filing (12 months for entries flagged for FTA issues, 21 months for
entries flagged for other reconciliation issues such as value, classification, and 9802);
and

the types of reconciliation filings (entry-by-entry and aggregate).

If you have any questions regarding this development, please contact Kevin
Leonard at kleonard@gdlsk.com, Erik Smithweiss at esmithweiss@gdlsk.com, or any
other attorney at the firm.
1 Not all transfer price adjustments are eligible for reporting through reconciliation. Downward adjustments must meet the criteria

set forth in Notice of Revocation of a Ruling Letter HQ 547654 Relating to Post-Importation Adjustments; Transfer Pricing; Related

Party Transactions; Reconciliation, 46 Cust. B. & Dec. 23 (May 30, 2012)

This press release was distributed by the

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