Emil Stefanutti: Hello everyone and welcome back to the Trade and Tech Podcast brought to you by Gaia Dynamics. I'm Emil Stefanutti, co-founder and CEO of Gaia Dynamics. And as always, I'm joined by Tom Gould, Gaia's Chief Strategy and Compliance Officer. Tom, always great to share these interesting chats with you. How are you?
Tom Gould: I'm doing great, Emil. Thank you. always like having a chance to chat about tariffs and customs and so forth. So I'm looking forward to our conversation.
Emil Stefanutti: Yeah. and we have bunch of talk about this time around. and definitely one of the most important events on the trade calendar, the twenty twenty six CBP Trade and Cargo Security Summit, which just wrapped up in Dallas. so for those in our audience that don't know, every year this summit gives the trade community a sense of what CBP is gonna focus on. I think this year it felt a little different. You know, I guess the central message wasn't simply that enforcement is increasing, which I think everybody knows by now. I think you know, it was CBP kind of wanting to know much more about you know the complete story behind an import, who is the importer, who actually manufactured the product, who handled it along the way. what information was submitted to the exporting country and so on and so forth. So that's going to be an interesting conversation. And we're going to be separating what has already changed from what's still kind of being proposed and talk about what companies should be doing now. And what a lucky break for us to have a terrific guest joining us, Mark Tallo, managing partner and a member of the operating Committee at Sandler, Travis, and Rosenberg. Mark advises clients across international trade and customs law with particular experience in duty saving strategies, the first sale rule, free trade agreement, preference programs, customs valuation, tariff mitigation, proactive import compliance reviews. Mark, welcome. It's great to have you with us. Did I miss anything on your you know, amazing career?
Mark Tallo (ST&R): well thank you. no, no, that that hits it as well as anything else someone asks me a question about, right? But thank you er very much for the opportunity and looking forward to the chat here today.
Emil Stefanutti: Yeah, and questions we do have for you. So let's jump right in starting with, you know, the message from Dallas, right? Mark, if you had to reduce the three days of summit sessions to one message for an importer who wasn't there, what would it be?
Mark Tallo (ST&R): Ooh, you know, there there were there there were some very focused right messages from CBP. you know, but I I think if if I had to pick one of them, it might be the the general concept expressed in different ways that importing is a privilege and not a right. And that if you want to be an importer, There are certain things that CBP expects you to do, right? Having a tax ID number and a broker isn't enough anymore, right? And and and it was this general concept of you know, CBP expects more of the importing community. And I think we're gonna find out a lot of the details around that in the coming months. But but I think that was, you know, an overarching theme that kind of touched on all of the other aspects of what what C B P wanted to convey.
Emil Stefanutti: let me ask you, I mean, because there was a lot of content and a lot of interesting conversations. So in your opinion, what felt kind of genuinely new and what was kind of simply CBP reinforcing priorities we've heard before?
Mark Tallo (ST&R): Yeah, there is a lot that is maybe not new, but the importance and focus I think is more pointed on particular issues. one of the things that felt at least different from last year, was kind of the energy, right? CBP sort of came across as energized. They have, a mission, they have people, they have resources, and they're now sort of tasked with figuring out how to carry those out, right? it is I think an exciting time to be at CBP. It's an exciting time to be in the trade and working with companies and individuals in the trade space. And so I think, CBP really felt a little bit more energized and motivated, right, to do this. it is not often that you see, the types of more wholesale changes to a government agency that are underway within CBP. And so it seemed like, CBP is embracing that and wanting to move forward.
Tom Gould: You know, I Mark, I think that's a really important point and I completely agree with you. And I would even expand upon it. And you're right, they're energized but throughout the agency. It's not like there's one part of the agency that's got, you know, a mandate to do something that they want to do and they're moving forward. It's like everybody in the agency and maybe even everybody in the department, Department of Homeland Security, is really focused on, like you said, this mission of enforcement. and, you know, you mentioned importing is a is a is a privilege, not a right. it's a simple thing to say, but it really is a complex concept. We've all understood for many, many years that importing is a right. I mean anybody can do it. Well now when they take the attitude of importing as a privilege, things become more complicated, more difficult. You have to prove that you're eligible or that you have the right to to do what you what it is that we've all taken for granted for many years.
Mark Tallo (ST&R): Yeah, i and I think, you know, that that sort of message, I think, you know, in some of the breakout sessions on on day three toward, you know, the end of of the sessions, one of the individuals from a company got up to talk to CBP and ask questions and was saying like how how do I sell all of this increased compliance to my company internally like how do I justify all of the things that CBP is asking knowing your supply chain knowing all the entities involved knowing your products right and the gist of it was what what does my company get out of it? what is the ROI? And the response from CBP was you get to import goods, right? And that and that I think is more is it's it's sh flipping on its head, right? In the past, customs has tried to incentivize trusted traders and increase, you know, visibility into companies by sort of putting carrots right out and saying if you do these things, if you put partner with us, you will get expedited clearance, I think customs is now saying. you know, that is kind of the minimum and you you will get goods entered into the country which which is, you know, a privilege, right? I think it's, you know, customs looking at it di differently and the trade sort of understanding, we have to look at this di differently too, right?
Emil Stefanutti: that actually is spot on. you you guys just actually quoted some phrases that were sort of repeated throughout the conference, you know, economic security is national security, importing is a privilege and not a right the you know, the executive order is game changer, enforcement is an all of agency effort. So taken together. Right, in very pragmatic terms. What do those statements tell us about how CBP and the DHS more broadly will change their processes?
Tom Gould: So, you know, I I think what we're seeing happening is we're seeing a convergence of several things We have an increase in tariffs, we have an increase in enforcement, but we also have an increase in technologies that will allow the government to really do a better job of looking at the information, the data, the documents, the people, the companies involved. And make better decisions on where they should place their their emphasis, what they should look at. And you know, gone are the days when you would bring a product in and you would look and you would tell customs this is the product that I'm bringing in and this is what I paid for it and this is where it came from. that's no longer what's required. Now we need to tell customs, and when I say tell customs, I'm talking about the declarations that are made and so forth. About everything that went into making the product, all the way back to the raw material. So think about the forced labor issues and knowing where the cotton was grown in order to make the t-shirt that you're importing. Customs wants to know that. Same thing with solar panels. They want to know where was the polysilicone mined to make the solar cells that were used to make the solar panel. They need to know everything along the way. And with today's AI tools, they're much Better able to ingest all that information, and make better decisions on enforcement based on that information. And so what that is telling us is those of us in the trade that want to participate by importing, we need to have access to this information. We need to look at it before we give it to customs. And we need to have a way of getting that information across to customs. in a way so that they look at it and they go, Okay, this is a good company. We don't need to dig into them to to make sure because if not, we may not be able to import.
Mark Tallo (ST&R): I I think that's that's a good point. you know, right now there's a little bit of asymmetry, right, on that AI front. customs is using AI and tech tools to target shipments. and also we heard to review voluminous amounts of information that importers are being asked to provide tracing back in the supply chain each of those materials. I think what importers are realizing is that, you know, the process they are going through currently can be very manual for themselves, for their suppliers. and then you turn all of that over to customs the thousand thousands pages and they're using AI tools to sort of tick and tie and summarize because they they don't have the resources to go through that. I think that the next phase is how do how do importers leverage AI tools and other technology to build that type of transparency and information into their supply chain. And so I think there are importers working on that, but I think the the pace and speed of that has to increase to keep up with this heightened in enforcement.
Emil Stefanutti: Yeah, a hundred percent. And you know, I wanted to sort of go back to some of the topics, right? And and some of the big topics that were discussed and starting with importer identity, because some of the figures that were reported from the summit were remarkable to me. And it's and I saw some recaps that people have been posting online and one of them, you know, says something to the effect that CBP discussed sending roughly ten thousand importer of record verification notices, right? And according to that account, eighty eight percent of the recipients failed to verify. Right. And and Roughly 9,000 IOR numbers were voided and 800 cases involved confirmed use of stolen identity information. So these are, you know, big figures. And again, these are not numbers that we've seen from CBP, you know, sort of published in a formal statistical release, but these were things that were kind of discussed. And so, Mark, what do these numbers tell you? I mean, are we primarily looking at deliberate fraud or poor record keeping companies are no longer operating or a combination of of all of this?
Mark Tallo (ST&R): Yeah, I certainly there is there is fraud. I mean, we have seen instances at least in my current c career of an importer's IOR number being used for entries that were not theirs, right? And so I mean th those things occur. I think what those numbers kind of tell us now is that The importer of record identity and database has not been tended to in a long time. And I think the statistics is that there's over three hundred thousand unique importers of record. My hunch is that on any given in any given year, there is probably a third of those that are actually regularly importing. And so I think part of this process is customs trying to clean up the importer of record list. And I would presume that a lot of those where they didn't get responses is cause the company is just no longer engaged in importing business or no longer around. And so this is a good a good time, especially before the executive order and validating US IORs. I think they're trying to to clean up that process. And along the way, I'm sure they will find fraudulent actors, you know, in in some of those. But my hunch is is that it would be a small percentage of the overall importers.
Tom Gould: You know, I agree with what you're saying, Mark, but I'm a little bit maybe a little bit more concerned than you are for part of that. So, you know, what we're talking about is people are talking about the fifty-one six file. 5106 is the form that's used by usually by customs brokers, but an importer can file the form themselves on paper or a PDF to add their information or update their information in ACE, in customs systems, so that they can be an importer. or a consony or or work with customs. And I agree with all that you said that customs is cleaning this up. The concern that I have is that as companies are cleaning up their records and as customs is going through and cleaning up their records, customs is finding out that there are mistakes in the data. There are old addresses that haven't been updated. There's missing email addresses or phone numbers. That are just not in the database. There are company names that are either misspelled or the company name doesn't match exactly what's on file, for example, in the Secretary of State where the company was incorporated, or maybe the IRS. And I'm concerned that customs is going to be looking at some of these nitpicky little errors and going, that's a problem. We see ABC Inc. in the in our fifty one six data, but there's no ABC Inc. out there. There's an ABC LLC. And so we're going to deactivate ABC Inc.'s number and let them fix it. and by the way, they're not going to be able to import until they correct it. And that's the concern that I have there.
Mark Tallo (ST&R): Yeah, Tom, that is that that is exactly right. you know, in terms of the verifications, I think the message to importers is your message. Customs is coming, they will be looking, right? They're they're scrutinizing the importers of records. So now is the time to to dust it off and validate, you know, is our has our entity name changed? Maybe it changed a decade ago. But it never got updated in customs system. you know, it has is your address the same? Are your officers that are reported, right? I mean, all of those things should be of primary importance to importers in the immediate days, right? Because we know this is on their radar and it behooves customs and the trade to sort of fix these issues before the EO. sort of rules c come out on how to define a US IOR so that so that you can be more co confident in the in the baseline level of information that is on file with customs.
Emil Stefanutti: you know, this will be, I'm sure, a lot of the effort, for companies to now really get their house in order, to keep doing business in a way that is compliant with all these rules, right? And and I think this takes me to a a different part of the conversation, which has to do with customs brokers and how the role, if the role is changing, right? So CBP has said that brokers must conduct greater due diligence on clients, right? And CTPAT validated brokers are facing additional vetting requirements for foreign importers of records. So, Mark, what does meaningful broker due diligence look like? And how far beyond collecting, let's say a power of attorney or identification documents should a broker reasonably be expected to go.
Mark Tallo (ST&R): Yeah, and that I think is a million dollar question. you know, there is certainly a a desire within C B P to have, you know, brokers do much more scrutiny of the entities that they're importing on behalf of and the information that that they're reporting to customs, right? I think in In the past, right, CBP might have viewed brokers more as like a passive relay of information. you know, obviously knowing their importer is one aspect of that, but not necessarily holding the broker liable for you knowing whether the valuation is accurate or the origin of the product, you know, do doing k kind of in independent checks. But and I'd be interested to to Tom in your thoughts because I think you're you're much closer to the brokerage community. But you know, it seems as though customs is wanting brokers to almost be like a frontline, you know, defense now against some of the fraud or or misdeclarations that they're seeing. And I know hearing from you know, the the brokerage side in a lot of areas, especially with like identity of the of the importers, you know, they're saying we aren't experts in in in reviewing, you know, passports or driver's licenses and figuring out whether or not they are legitimate or or not. And so I I heard a lot of brokers at the summit, you know, saying to customs, you know These are things that are more within your wheel wheelhouse. We will take on, you know, the the increased obligations, but some of them are better suited for government.
Tom Gould: You know, I hear what you're saying. And I what I'm seeing is that there's kind of two different camps within the customs brokerage community. Some customs brokers are saying, customs, this should be your responsibility. And others are saying, you know what, this may be an opportunity for us to step up and show that we are more of a partner with customs and also take on that a little bit of that ex extra responsibility. You know, and I tend to be leaning towards the the latter side as I think that this really is an opportunity for customs brokers to show the government and to show their customers that they are more of a professional because they are going to go through professional processes to do things. You know, traditionally, when a customs broker would sign up a new client, they would get a power of attorney from somebody, an email with a PDF copy of a Power of attorney, they put it in their file and they were done. They would set the company up in their system and they're done. And what customs is saying is that that's no longer, that's no longer enough. And I actually don't disagree with customs there, right? If you are working in any other business, any other industry, and you're looking at signing an agreement, signing a contract, there's a bit more due diligence that companies do. And I think about like what happens if you go to the bank and set up a new bank account. You know, you sit down with a bank officer, maybe it's online or maybe it's you know in person, but they're gonna want to see your identification before they set up the bank account. They want you to sign certain documents before they set up the bank account. You know, the same thing happens if you go into a new doctor's office. You have to fill out some paperwork, they go over it with you, they ask you some questions, and they look at your identification, they look at your insurance cards and so forth. They gather all that information. Well, I see customs brokers as needing to do that now much more diligently. Things like verifying who it was that signed the documentation. And that means looking at their ID to see that their signature on their ID matches the signature on the document that they just signed. But it also means doing some due diligence and looking at is that person really an officer of the company? Is there are they listed in corporate documents somewhere? So again, I see this as kind of a, it's a way where some brokers may come back and say, you know, I want to push back to customs and say, customs, you do it. customs I think has is gonna come back and say, look, we're the government. We just don't have the resources to vet every single company that wants to import. And so I think there are gonna be company, customs brokers that are gonna step up and do a better job and are gonna be successful. And there are gonna be some that may not be so successful.
Mark Tallo (ST&R): And and how do you think that that interplay works among, you know, brokers of different size, right? you have small brokers and we heard a little bit of this at the summit, you know, that from CBP's standpoint and you know reasonable care in in particular, which isn't directly analogous to this, but you know, that it is a different standard for a smaller company than it is for a larger company because the the amount of resources and capabilities are just different, right? do you see, in the broker requirements that that being an aspect of how customs would determine, how how much vetting is enough?
Tom Gould: I don't know that I s necessarily see a distinction. I don't think customs will make a distinction based on the size of the broker. You know, there's some brokers that are small that have much more intimate relationships with their customers and some brokers that are large where every customer is just a number. but I think it's gonna be the big companies are gonna have to set up more processes and and and be more formal with the way they're gonna do it. Maybe they're gonna have systems to collect the information and they're gonna have checklists and you know. double checking and so forth. Whereas a small broker, it may be the owner that sits down and has a meeting with the customer and has them sign the paperwork right in front of them. Or maybe they do it virtually again where they build that more intimate relationship. So I I honestly don't think that size of the brokerage is going to change the requirements, but it may change the process.
Mark Tallo (ST&R): Yeah. Yeah. and it may even be easier for some small brokers to have that, you know, connection and relationship and un understanding that
Tom Gould: Right.
Mark Tallo (ST&R): larger brokers don't necessarily have the processes in place to do.
Tom Gould: Yes. it's gonna maybe make the playing field a little bit more level. One of the concerns that I've heard for years, because when I've been at a brokerage or when I was, you know, collecting this type of type of information, I would ask for the ID of the person that signed the documents. And I often got pushback on that and I would the pushback was the other broker never asked me for that. Well, now With customs being very vocal and very clear that brokers have to do these vettings, i it's not gonna be as easy for a broker to say, I dunno I'm gonna skip those steps
Mark Tallo (ST&R): Yeah. And I also wonder if there's a hybrid approach where there could be some kind of like e-verify type system where a broker could could validate identity
Tom Gould: Potentially. Yeah.
Mark Tallo (ST&R): or information through a system that gives like a a okay or not, right?
Emil Stefanutti: Yeah, that's interesting. We'll definitely have to look into that. and l let me shift a little bit to, you know, entry visibility to supply chain visibility and what may be one of the biggest long-term developments, right? just before the summit, CBP published an advanced notice of proposed rulemaking on heightened Import disclosures and supply chain visibility, 64 questions that considers, several major changes, including collecting documents and a file with foreign customs authorities and so on. So there's a lot in there. Mark, you know, can you explain to the people that maybe listening and that don't really know exactly What an advanced notice of proposed rulemaking actually means and what is in effect today and what's still only a concept on which CBP is asking for input.
Mark Tallo (ST&R): Yeah, that is a great question. you know, government rulemaking is, you know, a a whole area in and of itself. But I think I I I do want to give, you know, CBP a tremendous amount of credit for being deliberate and coming out with this advanced notice of proposed rulemaking. And from from what we heard, right, they have a team dedicated you know, all day, every workday, right? To thinking about how to implement the EO. and you know, they could have come out with what's called an interim final rule, which basically means, here's the rule, it's going into effect now or almost immediately, right? And give us comments about it at some point in the future, and we might change it at some time, right? That That would have been really difficult for the trade to to digest, right? And I think it wouldn't have made for great policy. With the advanced notice of proposed rulemaking, this is a way in which customs, it's basically a request for information, right? We have a lot of questions and we're not sure. You know, because customs even acknowledg the summit, like they're not business people. They know government, right? And they know their operational policies, but but they don't know, how business functions on a day to day basis or the, operational or commercial realities. So the advanced notice of proposed rulemaking basically said we have a lot of questions. And we know these are the issues that are the subject of the executive order and the rules that we need to make. So we want input. And so I think it is really important for the trade to take that seriously and provide real. practical input, right? go through all of those questions. I think associations will be an important part of providing those comments, but but CBP and the government wants to hear from companies, right? They want to hear how the what the distinction is between, you know, a large multinational retailer and a small mom and pop, you know, importer. wholesaler, right? They want to see the distinctions between, you know, the apparel trade and the electronics trade. So it it is it is really it's customs is affording the trade a great opportunity and I I would be it it would be disappointing for us all in the trade not to take customs up on it and to provide you know really good concr concrete feedback because That's what they're going to use to make policy and rules that that may shape the next decade or two of of imports.
Tom Gould: I agree. I I really do credit. Customs for coming out with the ANPRM before going into the actual drafting, right? They haven't actually even drafted any of the regulations yet. And they did propose some pretty controversial things that they want to do. And I know they're gonna do some of them. I hope they're not gonna do all of them, but we'll have to wait and see. And I agree with you, Mark. I really agree that it's a good idea to for any company that imports to be looking at those questions and submitting comments. And That can be done by the company, it can be done through trade associations, it can be done in various different ways, but the more com the more feedback they get, the better the rules are gonna come out to be.
Emil Stefanutti: Now let me ask you, you know, in more in in practical terms, right? We hear the phrase supply chain visibility, which can mean almost anything, right? And so for an importer, how far upstream do you think CBP is really asking companies to see? You know, is it the direct supplier, is it actual factory, is it raw material providers, is every intermediary that touches the goods? You know, what is kind of legally and operationally realistic here?
Tom Gould: You know, I'll let Mark opine on this, but I want to share my thought, one my one of my thoughts on that, and that is that in in my discussions with customs over the last I don't know, many years, ever since going back to the beginning of CTPAT twenty-five years ago or the the forced labor issues that became priorities over the last, I don't know, five or more years. One of the things that became Very apparent to me was that many people at Customs really don't understand the supply chain or the businesses. I can't tell you how many times I've had conversations with somebody from Customs and their attitude was, Well, you make a t-shirt. Why don't you know where the cotton was from? You must know that, because you made the t-shirt. You imported the t-shirt. And they do the same thing with, you know, with a car, you know. Well, you built a car. You must know what what mine the steel was mined from in order to make the bolts that were used to hold the engine together. That's really their attitude. And I think that concept is driving a lot of the demand. And I think in in some situations, you know, like with forced labor and with you know some of the supply chain issues, supply chain security issues. Knowing further back in the supply chain is important, but I think it's also important for us to educate customs on really what a supply chain looks like or what it looks like to make a product so that comp customs will know how many different layers are involved and how many different parties are involved. But Mark, I'd love to hear your thoughts too.
Mark Tallo (ST&R): Yeah, I mean that there is the operational commercial realities, there's C B P's kind of reality. and I think CBP wants to know, you know, dirt to shirt, right? All all all the way back to where, you know, it was mined, it was grown, you know, all of those steps, but but commercially for every single product that's imported, that is incredibly difficult to to do. You know, maybe maybe if you have a bolt, it's a little easier, but you know, if you have a refrigerator, that that is that is much more complex. and so I think part of it is that educating customs. And the other is right, I think we should also focus on What are the priority issues customs is trying to enforce, right? They're trying to enforce transshipment, which is heavily related to origin, right? So you have to know for your products at the very least, right, back to a level where you can confirm that origin conferring operation took place, right? And and you have to not only know, you know. Who that supplier is, probably a tier one so supplier, but be able to demonstrate that through documents. And that is, you know, raw material per purchases, utilities, right? pictures of the pr production facility, all of that to to sort of show that this is a product and I can validate where its origin was. If you're looking at a for forced labor type. review then then you are going you know all the way back in the supply chain but but it you know for every product that might be really difficult and so focusing on those priority areas and what the enforcement issue is will it kind of help an importer define how far back they have to go and what types of documents they need to obtain and have their vendor be ready to provide within 30 days, right? I mean it is cu customs is asking for a a lot of information and generally not providing extensions. So you know you need to be sure you can identify what information is needed and that your vendor's able to provide it really quickly.
Tom Gould: You know, Mark, you you really touched on a very important point, the not providing extensions. You know, it used to be that when we received a request for information, you got 30 days to respond. So on day twenty nine, you'd go to customs and say, I need more time, and they would give you more time, and you would do that over and over again, and you could stretch it out to two, three, four months. It's no longer the case. Customs isn't giving those extensions and They're assuming that you have the information readily available. That's why they don't give the extensions. And that's why it's so important for companies now to be proactive and get all that information before customs comes asking.
Emil Stefanutti: And since we're talking about documents, one one thing that also think caught my attention was the foreign document comparison, right? I think that's another one that
Tom Gould: Yeah.
Emil Stefanutti: was interesting. And essentially CBP considering whether importers should obtain, retain, or submit documents that foreign exporters provide to their own customs authorities. which may include export declarations, commercial invoices, you know, packing lists, certificates of origins, and so on. So I guess the obvious enforcement use is comparison and and does the value declare on export match the value declare in the US? And does the quantity match and does the product description match and so on and so forth? So Mark, how significant would that be? And would this be one of the most consequential changes to imported record keeping in in years?
Mark Tallo (ST&R): Yeah, I guess I guess it would be. in in the sense that, you know, it is information that has a totally different audience and a different set of rules and regulations built around it, right? Each country will create their export requirements based on the policy goals that they're tr trying to achieve or understand or the statistical recording, right? and so the fact that the you know value reported on export may not match the value on import, I don't know how relevant that will be. You could you could have an exporting entity who's selling to a trading company in a third country at you know a dollar a unit and then that trading company may sell to the U the the US importer for dollar twenty, right? And when you compare a dollar to a dollar twenty, I I don't know how relevant that is. classification similarly, while generally harmonized, you know, I and I know I know Tom has you know told importers this too. You know, regardless of what your vendor is classifying the the good as, y you should do your own independent classification work because the classification rules in country, you know, A may not be the same as the US. and even so, you know, it's really only harmonized six digits and you know, so there are there are a lot of reasons that the export information may not be a great benchmark to compare US import information. And I think, you know, part of what the regulations and rulings team was kind of talking about at the summit was, you know, what information on the export document should we be looking at, right? How should we be using that? Because I think even even they are trying to understand how to best use that information going forward.
Tom Gould: You know, I agree with everything that Mark said. And you know, one of the things, again, this is goes back to the concept that customs doesn't really understand business and how business works. If you think about imports and inco terms that are being used by companies, of the eleven inco terms, only one allows the importer access to that export data. Right. If you're importing under Xworks terms, then you as the importer are responsible for exporting and getting the goods out of the country. But under all the other terms, it's the supplier's responsibility to clear customs for export out of their country. You know, another thing to think about is we in the United States have rules and laws in place that make it illegal. for US companies to provide export information to f anyone outside of the US, foreign governments, foreign customs authorities, foreign suppliers or foreign vendors, suppliers, whatever. It it's it's not allowed. And so that's gonna be some hurdle I think that CBP is gonna have to get over if they really do want to pursue getting that export information. And I agree with Mark is that you know, sometimes a discrepancy in between one, you know, an export and the subsequent import is an indication that there's an issue. But I think that more often than not, there are perfectly legitimate reasons for that information to be different.
Emil Stefanutti: Yeah, no, I agree with that. And I imagine, of course, there's the very practical complexities like different languages or different product descriptions or classification systems or evaluation concepts and and whatnot. So we'll we'll have to see how that that plays out. And moving quickly towards more of the technology, and we we touched on it A little bit the beginning of the conversation and obviously i AI appeared throughout the summit and and I think one session described the goal as moving from reactive analysis after an event to a proactive and predictive posture, which I think is consistent with what we've been sort of seeing and hearing lately. and I even saw an attendee recap, you know, that says CBP officials discuss using AI to identify violators and act more quickly, which I think, you know, is consistent with what you and Mark have been saying in in this in this conversation. So Tom, you know, what does AI allow CBP to do today, right? That would have been impractical even five years ago, and is is the biggest e you know change speed? or the number of transactions it can review or the ability to connect sort of patterns across importers, addresses, suppliers, products, brokers and and so on.
Tom Gould: You know, I think it's all the above. And I I kind of like to compare what was done in the past to what's happening today when addressing this question. So if you think about in the past, remember every single customs entry is a separate transaction for customs purposes. You know, it's not like when you're dealing with the IRS and taxes where you file a tax return that summarizes everything the business did for the year. With customs entry, each entry stands alone unto itself. And yes, somebody at Customs could look at an entry and compare it to the last entry, but it's hard to do in any in any scale and without technology. But now, with today's AI type of technology, it's far simpler for comp Customs or for companies to analyze data looking for patterns. You know, one of the things that I like to point to that we've seen over this last year is the whole refund process, the refund of AIPA duties in the CAPE system. Well, customs clearly integrated technology like AI technology to review the data on the entries before the refunds were issued. Prior to CAPE, All of those refunds were looked at one at a time by somebody at Customs. And so what we see happening is Customs is scrubbing that data on the entries where the company is claiming refunds. And what we're seeing is we're seeing situations where customs is actually correcting errors in mass before they're issuing refunds. Right. So I've seen situations where a company imported products from China, they paid the AIPA tariff, but they didn't pay the old Section 301 tariff that was applicable. And instead of finding that on one entry or an entry here and there, customs found it on every single entry where the error was made. Again, because they're using this technology to do that. And I know that we're doing the same thing at Gaia, where we're able to help companies by proactively looking at that data. and finding those errors again in mass so that companies can correct them before customs finds them. And so that I think is really the the one of the bigger use cases right now that customs is actually making of AI technology, and that's looking at the data.
Mark Tallo (ST&R): And I I think I think
Emil Stefanutti: Yeah.
Mark Tallo (ST&R): that's a great that's a great point, Tom, to kind of because I think I think a lot of the focus is on the targeting, right? To targeting changes in origin or value based on, you know, tariff ch changes. But but on the the flip side of that is, you know, we are seeing customs use technology to be able to issue mass refunds quicker, right?
Tom Gould: Yeah.
Mark Tallo (ST&R): and
Tom Gould: Yeah.
Mark Tallo (ST&R): and and that not only in in the sort of AIPA context, but but also in ordinary protest type work, right? if you have you know mass changes to some of the other t tariff regimes under 232, right? And you have to fix a thousand entries and and adjust the adjust the value and get get a refund, whether it's for US content or other, right? Import offset in the auto context. customs is is looking to sort of ways to take that information in the protest context and and automate it, right? To to automate those those refunds. So I think, you know, again, the the trade and customs have work to do to figure out how how that process is more seamless, right? To to take, you know, data and information that Gaia has found, you know, all of these adjustments that that importers should should be claiming, right? and how do you get that through into a protest in a data file that is easily di digestible by CBP so that so that they can remove a lot of that manual work and just issue refunds right through through those prop processes. So I see that as as a real, you know, opportunity for the the trade and customs to kind of connect and synchronize the formatting of that information to make it much easier for importers to request and receive money.
Emil Stefanutti: And and I wonder, you know, C BP was, was also very clear that humans need to remain in the loop, right? When companies use AI, I think that has been made abundantly clear lately. So, Mark, do you see CBP applying that same standard to its own use of technology? I mean, when an automated system flags a shipment importer or transaction, how much meaningful human review you know, should occur before that flag creates a hole or an investigation or the enforcement consequence.
Mark Tallo (ST&R): Yeah, I I certainly I certainly think C B P is very much of the mindset that that human interaction has to occur, at least in the validation stage. Maybe not in targeting, right? Targeting it may be enough to have an algorithm say, Hey import specialist team, right? Look at look at this entry, ask questions about that entry, you know, have AI review that information, but then look at the report and figure out what type of enforcement action you should take. I certainly think CBP will sort of use AI to sort of facilitate its work, but not certainly not supplant the decision making of an import specialist, at least in the next, you know, five years.
Emil Stefanutti: Yeah, and we could be doing this all day. I mean, especially with the two of you, this conversation can go on and on, right? That there is so much depth and and value in this. And and I didn't wanna, you know, kind of close today's conversation without touching on forced labor, transshipment, trade fraud, right? These these were very big things. you know, obviously We we heard about, you know, all of these different things and A D, C V D, evasion, broader trade fraud. And these are kind of different legal regimes, but they share a common problem, right? the answer often seeds beyond the first year supplier. So Mark Are we reaching the point where a supplier certification is no longer meaningful by itself or and what evidence should an importer expect to have when sourcing from a higher risk product category or region?
Mark Tallo (ST&R): Yeah, I I dare dare to say we are past the point where a supplier's certification is sufficient, right? in forced labor that has certainly been the case, but now the trade is on notice that you you have to have more information, right? And I think a lot of those enforcement areas that you identified or customs identified, right? Transshipment, AD, C V D, Force Labor, you know, all of those at its core are about knowing knowing a product. Who made it? Who made the inputs that went into it? Where did that occur? Right? Getting beyond that. tier one to really understand how and where the product was made and with what right is going to be kind of the task of trade to really figure out how they gather that information on a product basis and are able to provide that to CBP That's that's sort of the critical element that all of those different issues are triangulated around.
Emil Stefanutti: Yeah, that that makes sense. and Tom, I wanted to pick your brain on another subject very quickly. And you know, there was a conversation about ACE. And you know, you and I at Gaia, we we you know, we keep dealing with data, right? and and so, you know, sort of turning very kind of briefly to the infrastructure behind all of this, right? And ACE modernization session focused on the next one to two years, including greater automation and more seamless information exchange with trade systems, which sounds awesome. But do you see ACE becoming more than a filing platform? And is it evolving into the data layer through which CBP can connect importer identity and supply chain evidence, targeting payments, corrections, enforcement? I mean, do you see that?
Tom Gould: Yeah, you know, yes, first of all, yes, I do see that as the case, but you also have to really understand what ACE is. ACE is not a program like Microsoft Word. ACE is a whole platform. ACE has lots of modules, it does lots of things. ACE is the system where brokers file the entries. ACE is the system where carriers file the manifest information. ACE is the system where importers can go in and run reports, but each is using a different piece of ACE, a different part of ACE. To me, ACE is a really decent large warehouse of data. And to me, the weaknesses in ACE, the weak areas in ACE right now is the ability to communicate that data in and out of ACE. The trade, to the carriers, to the importers, to the brokers, but also to customs, to the government agencies, to governments. And you know, in some ways I blame the trade for that because the trade and the brokerage community has really pushed to maintain the status quo as far as the communication protocols are concerned. So for example, when a customs broker files an entry with with in in ACE, The communication protocol or the pipeline between the broker system and the ACE platform is really antiquated. It's it it's it's really antiquated. It goes back to the days of punch cards. and if you think about if you're an importer and you want to run a report and you want to pull that data out of ACE to do some analysis with it. You download an Excel spreadsheet. Well, that may not be as antiquated as the way brokers get the data in, but it's still kind of antiquated. And so one of the things that I heard that I've actually been pushing customs for years on, but I years on, but I I heard at this summit, and I'm hopeful that it's going to happen, is that I think customs, I hope customs is starting to look at building some APIs, modern technology. It's used to communicate data between systems. And what that will do, first of all, it's going to allow importers to much more easily pull the data and analyze the data from the system. But it'll also allow the brokers and the importers to provide customs with more data, more timely data, more accurate data, and much more detailed data. You know, if we think about right now, the customs broker files the entry data. And if customs wants to see the invoice, it's scanned and uploaded in via the DIS system, which is another another part of ACE. But what customs is seeing is they're seeing the invoice as a PDF. And they may have some tools to scrape the data and to look at that data. But in reality, they're not. They're humans that are doing that. But as customs develops new APIs to allow for better input of data and export of you know, input and output of data. Then we're going to see more requirements for more data to be provided electronically in a structured format. And that's going to be a hurdle for a while for companies to get used to. But I think in the long run, it's going to benefit the government and it's going to also benefit the compliant importers that have systems in place to manage that data and to. provide that data. So instead of having to print a PDF and scan it and upload it into the system, there'll be ways for companies to simply pass that data directly to the government.
Mark Tallo (ST&R): yeah, I I think that ace has kind of, you know, slowly in the background kind of snuck up on everyone, right? it's early days it was, you know, it was developed and there were problems and I think the trade kind of wrote it off for a while, but more recently virtually everything trade related happens through Ace whether it's entry reviews or changes, right? Protests,
Tom Gould: Okay.
Mark Tallo (ST&R): all of that happens in the system, but by by someone, whether it's broker, C B P or others. W one of the things I was that I was most surprised by was hearing from I think it was the CTO of CBP indicating how many, you know, hacking and attacks the ACE system gets on a daily basis. And so, you know, when when users complain about passwords expiring in forty five days and you know the different security features that are built in, you know, that that really made me realize just how critical that system is. And and building in APIs like I'm I am sure, and I don't know the technicalities of that, whether that is more or less secure from a system standpoint, but but I'm sure anything that they do to to touch ACE has to go through this mindset of of security.
Emil Stefanutti: Yeah, for sure. so Mark, just wrapping up, I'll have one more question, short, short question for you. so I guess by this time next year, what will be materially different about the way companies import into the US?
Mark Tallo (ST&R): What won't be. no.
Emil Stefanutti: Ha ha ha.
Mark Tallo (ST&R): No. You know, I I think in terms of material differences, I think I expect, you know, a year from now, companies will have much clearer rules of the road with regard to what customs expects and how importers can import goods in a compliant way, right? I fully anticipate, you know, it will be, you know, not just telling customs what's in the box, but where did it come from? Who made it? Who who shipped it? Right? Who is who is entering those those numbers, right? What is your entity like in the US? You know, do you have a sufficient nexus to the US to be an importer of record? Or is there someone else who should be that importer of record? Right. All of those things I think we we are at a bit of an inflection point in, you know, the trade space. So I guess I said what won't be the same a little facetiously, but I I think there there will be more that is different than the same in a year from now.
Emil Stefanutti: Yeah, and I guess for compliant companies that will create additional work, but it also creates the opportunity to build kind of stronger processes before CBP asks the questions. we'll see. And hopefully Mark we'll we'll talk again. I'll put a pin on it and and log the calendar for one year from now. we'll review. you know, the answers that we thought about today and see how close we were. so
Mark Tallo (ST&R): Yeah.
Emil Stefanutti: Mark, thank you again for joining us and helping us make sense of a very consequential summit. I appreciate your time I still have a bunch of questions I would want to ask, but we'll we'll look for another time. So thank you again for your time, Tom. you know, always great to have your perspective on these things. I'm always impressed with how much you know about these things and how easy you make it for people to understand. So for everyone listening, thank you for tuning in to another episode of the Trade and Tech podcast. we'll see you again next time.
Tom Gould: I'm doing great, Emil. Thank you. always like having a chance to chat about tariffs and customs and so forth. So I'm looking forward to our conversation.
Emil Stefanutti: Yeah. and we have bunch of talk about this time around. and definitely one of the most important events on the trade calendar, the twenty twenty six CBP Trade and Cargo Security Summit, which just wrapped up in Dallas. so for those in our audience that don't know, every year this summit gives the trade community a sense of what CBP is gonna focus on. I think this year it felt a little different. You know, I guess the central message wasn't simply that enforcement is increasing, which I think everybody knows by now. I think you know, it was CBP kind of wanting to know much more about you know the complete story behind an import, who is the importer, who actually manufactured the product, who handled it along the way. what information was submitted to the exporting country and so on and so forth. So that's going to be an interesting conversation. And we're going to be separating what has already changed from what's still kind of being proposed and talk about what companies should be doing now. And what a lucky break for us to have a terrific guest joining us, Mark Tallo, managing partner and a member of the operating Committee at Sandler, Travis, and Rosenberg. Mark advises clients across international trade and customs law with particular experience in duty saving strategies, the first sale rule, free trade agreement, preference programs, customs valuation, tariff mitigation, proactive import compliance reviews. Mark, welcome. It's great to have you with us. Did I miss anything on your you know, amazing career?
Mark Tallo (ST&R): well thank you. no, no, that that hits it as well as anything else someone asks me a question about, right? But thank you er very much for the opportunity and looking forward to the chat here today.
Emil Stefanutti: Yeah, and questions we do have for you. So let's jump right in starting with, you know, the message from Dallas, right? Mark, if you had to reduce the three days of summit sessions to one message for an importer who wasn't there, what would it be?
Mark Tallo (ST&R): Ooh, you know, there there were there there were some very focused right messages from CBP. you know, but I I think if if I had to pick one of them, it might be the the general concept expressed in different ways that importing is a privilege and not a right. And that if you want to be an importer, There are certain things that CBP expects you to do, right? Having a tax ID number and a broker isn't enough anymore, right? And and and it was this general concept of you know, CBP expects more of the importing community. And I think we're gonna find out a lot of the details around that in the coming months. But but I think that was, you know, an overarching theme that kind of touched on all of the other aspects of what what C B P wanted to convey.
Emil Stefanutti: let me ask you, I mean, because there was a lot of content and a lot of interesting conversations. So in your opinion, what felt kind of genuinely new and what was kind of simply CBP reinforcing priorities we've heard before?
Mark Tallo (ST&R): Yeah, there is a lot that is maybe not new, but the importance and focus I think is more pointed on particular issues. one of the things that felt at least different from last year, was kind of the energy, right? CBP sort of came across as energized. They have, a mission, they have people, they have resources, and they're now sort of tasked with figuring out how to carry those out, right? it is I think an exciting time to be at CBP. It's an exciting time to be in the trade and working with companies and individuals in the trade space. And so I think, CBP really felt a little bit more energized and motivated, right, to do this. it is not often that you see, the types of more wholesale changes to a government agency that are underway within CBP. And so it seemed like, CBP is embracing that and wanting to move forward.
Tom Gould: You know, I Mark, I think that's a really important point and I completely agree with you. And I would even expand upon it. And you're right, they're energized but throughout the agency. It's not like there's one part of the agency that's got, you know, a mandate to do something that they want to do and they're moving forward. It's like everybody in the agency and maybe even everybody in the department, Department of Homeland Security, is really focused on, like you said, this mission of enforcement. and, you know, you mentioned importing is a is a is a privilege, not a right. it's a simple thing to say, but it really is a complex concept. We've all understood for many, many years that importing is a right. I mean anybody can do it. Well now when they take the attitude of importing as a privilege, things become more complicated, more difficult. You have to prove that you're eligible or that you have the right to to do what you what it is that we've all taken for granted for many years.
Mark Tallo (ST&R): Yeah, i and I think, you know, that that sort of message, I think, you know, in some of the breakout sessions on on day three toward, you know, the end of of the sessions, one of the individuals from a company got up to talk to CBP and ask questions and was saying like how how do I sell all of this increased compliance to my company internally like how do I justify all of the things that CBP is asking knowing your supply chain knowing all the entities involved knowing your products right and the gist of it was what what does my company get out of it? what is the ROI? And the response from CBP was you get to import goods, right? And that and that I think is more is it's it's sh flipping on its head, right? In the past, customs has tried to incentivize trusted traders and increase, you know, visibility into companies by sort of putting carrots right out and saying if you do these things, if you put partner with us, you will get expedited clearance, I think customs is now saying. you know, that is kind of the minimum and you you will get goods entered into the country which which is, you know, a privilege, right? I think it's, you know, customs looking at it di differently and the trade sort of understanding, we have to look at this di differently too, right?
Emil Stefanutti: that actually is spot on. you you guys just actually quoted some phrases that were sort of repeated throughout the conference, you know, economic security is national security, importing is a privilege and not a right the you know, the executive order is game changer, enforcement is an all of agency effort. So taken together. Right, in very pragmatic terms. What do those statements tell us about how CBP and the DHS more broadly will change their processes?
Tom Gould: So, you know, I I think what we're seeing happening is we're seeing a convergence of several things We have an increase in tariffs, we have an increase in enforcement, but we also have an increase in technologies that will allow the government to really do a better job of looking at the information, the data, the documents, the people, the companies involved. And make better decisions on where they should place their their emphasis, what they should look at. And you know, gone are the days when you would bring a product in and you would look and you would tell customs this is the product that I'm bringing in and this is what I paid for it and this is where it came from. that's no longer what's required. Now we need to tell customs, and when I say tell customs, I'm talking about the declarations that are made and so forth. About everything that went into making the product, all the way back to the raw material. So think about the forced labor issues and knowing where the cotton was grown in order to make the t-shirt that you're importing. Customs wants to know that. Same thing with solar panels. They want to know where was the polysilicone mined to make the solar cells that were used to make the solar panel. They need to know everything along the way. And with today's AI tools, they're much Better able to ingest all that information, and make better decisions on enforcement based on that information. And so what that is telling us is those of us in the trade that want to participate by importing, we need to have access to this information. We need to look at it before we give it to customs. And we need to have a way of getting that information across to customs. in a way so that they look at it and they go, Okay, this is a good company. We don't need to dig into them to to make sure because if not, we may not be able to import.
Mark Tallo (ST&R): I I think that's that's a good point. you know, right now there's a little bit of asymmetry, right, on that AI front. customs is using AI and tech tools to target shipments. and also we heard to review voluminous amounts of information that importers are being asked to provide tracing back in the supply chain each of those materials. I think what importers are realizing is that, you know, the process they are going through currently can be very manual for themselves, for their suppliers. and then you turn all of that over to customs the thousand thousands pages and they're using AI tools to sort of tick and tie and summarize because they they don't have the resources to go through that. I think that the next phase is how do how do importers leverage AI tools and other technology to build that type of transparency and information into their supply chain. And so I think there are importers working on that, but I think the the pace and speed of that has to increase to keep up with this heightened in enforcement.
Emil Stefanutti: Yeah, a hundred percent. And you know, I wanted to sort of go back to some of the topics, right? And and some of the big topics that were discussed and starting with importer identity, because some of the figures that were reported from the summit were remarkable to me. And it's and I saw some recaps that people have been posting online and one of them, you know, says something to the effect that CBP discussed sending roughly ten thousand importer of record verification notices, right? And according to that account, eighty eight percent of the recipients failed to verify. Right. And and Roughly 9,000 IOR numbers were voided and 800 cases involved confirmed use of stolen identity information. So these are, you know, big figures. And again, these are not numbers that we've seen from CBP, you know, sort of published in a formal statistical release, but these were things that were kind of discussed. And so, Mark, what do these numbers tell you? I mean, are we primarily looking at deliberate fraud or poor record keeping companies are no longer operating or a combination of of all of this?
Mark Tallo (ST&R): Yeah, I certainly there is there is fraud. I mean, we have seen instances at least in my current c career of an importer's IOR number being used for entries that were not theirs, right? And so I mean th those things occur. I think what those numbers kind of tell us now is that The importer of record identity and database has not been tended to in a long time. And I think the statistics is that there's over three hundred thousand unique importers of record. My hunch is that on any given in any given year, there is probably a third of those that are actually regularly importing. And so I think part of this process is customs trying to clean up the importer of record list. And I would presume that a lot of those where they didn't get responses is cause the company is just no longer engaged in importing business or no longer around. And so this is a good a good time, especially before the executive order and validating US IORs. I think they're trying to to clean up that process. And along the way, I'm sure they will find fraudulent actors, you know, in in some of those. But my hunch is is that it would be a small percentage of the overall importers.
Tom Gould: You know, I agree with what you're saying, Mark, but I'm a little bit maybe a little bit more concerned than you are for part of that. So, you know, what we're talking about is people are talking about the fifty-one six file. 5106 is the form that's used by usually by customs brokers, but an importer can file the form themselves on paper or a PDF to add their information or update their information in ACE, in customs systems, so that they can be an importer. or a consony or or work with customs. And I agree with all that you said that customs is cleaning this up. The concern that I have is that as companies are cleaning up their records and as customs is going through and cleaning up their records, customs is finding out that there are mistakes in the data. There are old addresses that haven't been updated. There's missing email addresses or phone numbers. That are just not in the database. There are company names that are either misspelled or the company name doesn't match exactly what's on file, for example, in the Secretary of State where the company was incorporated, or maybe the IRS. And I'm concerned that customs is going to be looking at some of these nitpicky little errors and going, that's a problem. We see ABC Inc. in the in our fifty one six data, but there's no ABC Inc. out there. There's an ABC LLC. And so we're going to deactivate ABC Inc.'s number and let them fix it. and by the way, they're not going to be able to import until they correct it. And that's the concern that I have there.
Mark Tallo (ST&R): Yeah, Tom, that is that that is exactly right. you know, in terms of the verifications, I think the message to importers is your message. Customs is coming, they will be looking, right? They're they're scrutinizing the importers of records. So now is the time to to dust it off and validate, you know, is our has our entity name changed? Maybe it changed a decade ago. But it never got updated in customs system. you know, it has is your address the same? Are your officers that are reported, right? I mean, all of those things should be of primary importance to importers in the immediate days, right? Because we know this is on their radar and it behooves customs and the trade to sort of fix these issues before the EO. sort of rules c come out on how to define a US IOR so that so that you can be more co confident in the in the baseline level of information that is on file with customs.
Emil Stefanutti: you know, this will be, I'm sure, a lot of the effort, for companies to now really get their house in order, to keep doing business in a way that is compliant with all these rules, right? And and I think this takes me to a a different part of the conversation, which has to do with customs brokers and how the role, if the role is changing, right? So CBP has said that brokers must conduct greater due diligence on clients, right? And CTPAT validated brokers are facing additional vetting requirements for foreign importers of records. So, Mark, what does meaningful broker due diligence look like? And how far beyond collecting, let's say a power of attorney or identification documents should a broker reasonably be expected to go.
Mark Tallo (ST&R): Yeah, and that I think is a million dollar question. you know, there is certainly a a desire within C B P to have, you know, brokers do much more scrutiny of the entities that they're importing on behalf of and the information that that they're reporting to customs, right? I think in In the past, right, CBP might have viewed brokers more as like a passive relay of information. you know, obviously knowing their importer is one aspect of that, but not necessarily holding the broker liable for you knowing whether the valuation is accurate or the origin of the product, you know, do doing k kind of in independent checks. But and I'd be interested to to Tom in your thoughts because I think you're you're much closer to the brokerage community. But you know, it seems as though customs is wanting brokers to almost be like a frontline, you know, defense now against some of the fraud or or misdeclarations that they're seeing. And I know hearing from you know, the the brokerage side in a lot of areas, especially with like identity of the of the importers, you know, they're saying we aren't experts in in in reviewing, you know, passports or driver's licenses and figuring out whether or not they are legitimate or or not. And so I I heard a lot of brokers at the summit, you know, saying to customs, you know These are things that are more within your wheel wheelhouse. We will take on, you know, the the increased obligations, but some of them are better suited for government.
Tom Gould: You know, I hear what you're saying. And I what I'm seeing is that there's kind of two different camps within the customs brokerage community. Some customs brokers are saying, customs, this should be your responsibility. And others are saying, you know what, this may be an opportunity for us to step up and show that we are more of a partner with customs and also take on that a little bit of that ex extra responsibility. You know, and I tend to be leaning towards the the latter side as I think that this really is an opportunity for customs brokers to show the government and to show their customers that they are more of a professional because they are going to go through professional processes to do things. You know, traditionally, when a customs broker would sign up a new client, they would get a power of attorney from somebody, an email with a PDF copy of a Power of attorney, they put it in their file and they were done. They would set the company up in their system and they're done. And what customs is saying is that that's no longer, that's no longer enough. And I actually don't disagree with customs there, right? If you are working in any other business, any other industry, and you're looking at signing an agreement, signing a contract, there's a bit more due diligence that companies do. And I think about like what happens if you go to the bank and set up a new bank account. You know, you sit down with a bank officer, maybe it's online or maybe it's you know in person, but they're gonna want to see your identification before they set up the bank account. They want you to sign certain documents before they set up the bank account. You know, the same thing happens if you go into a new doctor's office. You have to fill out some paperwork, they go over it with you, they ask you some questions, and they look at your identification, they look at your insurance cards and so forth. They gather all that information. Well, I see customs brokers as needing to do that now much more diligently. Things like verifying who it was that signed the documentation. And that means looking at their ID to see that their signature on their ID matches the signature on the document that they just signed. But it also means doing some due diligence and looking at is that person really an officer of the company? Is there are they listed in corporate documents somewhere? So again, I see this as kind of a, it's a way where some brokers may come back and say, you know, I want to push back to customs and say, customs, you do it. customs I think has is gonna come back and say, look, we're the government. We just don't have the resources to vet every single company that wants to import. And so I think there are gonna be company, customs brokers that are gonna step up and do a better job and are gonna be successful. And there are gonna be some that may not be so successful.
Mark Tallo (ST&R): And and how do you think that that interplay works among, you know, brokers of different size, right? you have small brokers and we heard a little bit of this at the summit, you know, that from CBP's standpoint and you know reasonable care in in particular, which isn't directly analogous to this, but you know, that it is a different standard for a smaller company than it is for a larger company because the the amount of resources and capabilities are just different, right? do you see, in the broker requirements that that being an aspect of how customs would determine, how how much vetting is enough?
Tom Gould: I don't know that I s necessarily see a distinction. I don't think customs will make a distinction based on the size of the broker. You know, there's some brokers that are small that have much more intimate relationships with their customers and some brokers that are large where every customer is just a number. but I think it's gonna be the big companies are gonna have to set up more processes and and and be more formal with the way they're gonna do it. Maybe they're gonna have systems to collect the information and they're gonna have checklists and you know. double checking and so forth. Whereas a small broker, it may be the owner that sits down and has a meeting with the customer and has them sign the paperwork right in front of them. Or maybe they do it virtually again where they build that more intimate relationship. So I I honestly don't think that size of the brokerage is going to change the requirements, but it may change the process.
Mark Tallo (ST&R): Yeah. Yeah. and it may even be easier for some small brokers to have that, you know, connection and relationship and un understanding that
Tom Gould: Right.
Mark Tallo (ST&R): larger brokers don't necessarily have the processes in place to do.
Tom Gould: Yes. it's gonna maybe make the playing field a little bit more level. One of the concerns that I've heard for years, because when I've been at a brokerage or when I was, you know, collecting this type of type of information, I would ask for the ID of the person that signed the documents. And I often got pushback on that and I would the pushback was the other broker never asked me for that. Well, now With customs being very vocal and very clear that brokers have to do these vettings, i it's not gonna be as easy for a broker to say, I dunno I'm gonna skip those steps
Mark Tallo (ST&R): Yeah. And I also wonder if there's a hybrid approach where there could be some kind of like e-verify type system where a broker could could validate identity
Tom Gould: Potentially. Yeah.
Mark Tallo (ST&R): or information through a system that gives like a a okay or not, right?
Emil Stefanutti: Yeah, that's interesting. We'll definitely have to look into that. and l let me shift a little bit to, you know, entry visibility to supply chain visibility and what may be one of the biggest long-term developments, right? just before the summit, CBP published an advanced notice of proposed rulemaking on heightened Import disclosures and supply chain visibility, 64 questions that considers, several major changes, including collecting documents and a file with foreign customs authorities and so on. So there's a lot in there. Mark, you know, can you explain to the people that maybe listening and that don't really know exactly What an advanced notice of proposed rulemaking actually means and what is in effect today and what's still only a concept on which CBP is asking for input.
Mark Tallo (ST&R): Yeah, that is a great question. you know, government rulemaking is, you know, a a whole area in and of itself. But I think I I I do want to give, you know, CBP a tremendous amount of credit for being deliberate and coming out with this advanced notice of proposed rulemaking. And from from what we heard, right, they have a team dedicated you know, all day, every workday, right? To thinking about how to implement the EO. and you know, they could have come out with what's called an interim final rule, which basically means, here's the rule, it's going into effect now or almost immediately, right? And give us comments about it at some point in the future, and we might change it at some time, right? That That would have been really difficult for the trade to to digest, right? And I think it wouldn't have made for great policy. With the advanced notice of proposed rulemaking, this is a way in which customs, it's basically a request for information, right? We have a lot of questions and we're not sure. You know, because customs even acknowledg the summit, like they're not business people. They know government, right? And they know their operational policies, but but they don't know, how business functions on a day to day basis or the, operational or commercial realities. So the advanced notice of proposed rulemaking basically said we have a lot of questions. And we know these are the issues that are the subject of the executive order and the rules that we need to make. So we want input. And so I think it is really important for the trade to take that seriously and provide real. practical input, right? go through all of those questions. I think associations will be an important part of providing those comments, but but CBP and the government wants to hear from companies, right? They want to hear how the what the distinction is between, you know, a large multinational retailer and a small mom and pop, you know, importer. wholesaler, right? They want to see the distinctions between, you know, the apparel trade and the electronics trade. So it it is it is really it's customs is affording the trade a great opportunity and I I would be it it would be disappointing for us all in the trade not to take customs up on it and to provide you know really good concr concrete feedback because That's what they're going to use to make policy and rules that that may shape the next decade or two of of imports.
Tom Gould: I agree. I I really do credit. Customs for coming out with the ANPRM before going into the actual drafting, right? They haven't actually even drafted any of the regulations yet. And they did propose some pretty controversial things that they want to do. And I know they're gonna do some of them. I hope they're not gonna do all of them, but we'll have to wait and see. And I agree with you, Mark. I really agree that it's a good idea to for any company that imports to be looking at those questions and submitting comments. And That can be done by the company, it can be done through trade associations, it can be done in various different ways, but the more com the more feedback they get, the better the rules are gonna come out to be.
Emil Stefanutti: Now let me ask you, you know, in more in in practical terms, right? We hear the phrase supply chain visibility, which can mean almost anything, right? And so for an importer, how far upstream do you think CBP is really asking companies to see? You know, is it the direct supplier, is it actual factory, is it raw material providers, is every intermediary that touches the goods? You know, what is kind of legally and operationally realistic here?
Tom Gould: You know, I'll let Mark opine on this, but I want to share my thought, one my one of my thoughts on that, and that is that in in my discussions with customs over the last I don't know, many years, ever since going back to the beginning of CTPAT twenty-five years ago or the the forced labor issues that became priorities over the last, I don't know, five or more years. One of the things that became Very apparent to me was that many people at Customs really don't understand the supply chain or the businesses. I can't tell you how many times I've had conversations with somebody from Customs and their attitude was, Well, you make a t-shirt. Why don't you know where the cotton was from? You must know that, because you made the t-shirt. You imported the t-shirt. And they do the same thing with, you know, with a car, you know. Well, you built a car. You must know what what mine the steel was mined from in order to make the bolts that were used to hold the engine together. That's really their attitude. And I think that concept is driving a lot of the demand. And I think in in some situations, you know, like with forced labor and with you know some of the supply chain issues, supply chain security issues. Knowing further back in the supply chain is important, but I think it's also important for us to educate customs on really what a supply chain looks like or what it looks like to make a product so that comp customs will know how many different layers are involved and how many different parties are involved. But Mark, I'd love to hear your thoughts too.
Mark Tallo (ST&R): Yeah, I mean that there is the operational commercial realities, there's C B P's kind of reality. and I think CBP wants to know, you know, dirt to shirt, right? All all all the way back to where, you know, it was mined, it was grown, you know, all of those steps, but but commercially for every single product that's imported, that is incredibly difficult to to do. You know, maybe maybe if you have a bolt, it's a little easier, but you know, if you have a refrigerator, that that is that is much more complex. and so I think part of it is that educating customs. And the other is right, I think we should also focus on What are the priority issues customs is trying to enforce, right? They're trying to enforce transshipment, which is heavily related to origin, right? So you have to know for your products at the very least, right, back to a level where you can confirm that origin conferring operation took place, right? And and you have to not only know, you know. Who that supplier is, probably a tier one so supplier, but be able to demonstrate that through documents. And that is, you know, raw material per purchases, utilities, right? pictures of the pr production facility, all of that to to sort of show that this is a product and I can validate where its origin was. If you're looking at a for forced labor type. review then then you are going you know all the way back in the supply chain but but it you know for every product that might be really difficult and so focusing on those priority areas and what the enforcement issue is will it kind of help an importer define how far back they have to go and what types of documents they need to obtain and have their vendor be ready to provide within 30 days, right? I mean it is cu customs is asking for a a lot of information and generally not providing extensions. So you know you need to be sure you can identify what information is needed and that your vendor's able to provide it really quickly.
Tom Gould: You know, Mark, you you really touched on a very important point, the not providing extensions. You know, it used to be that when we received a request for information, you got 30 days to respond. So on day twenty nine, you'd go to customs and say, I need more time, and they would give you more time, and you would do that over and over again, and you could stretch it out to two, three, four months. It's no longer the case. Customs isn't giving those extensions and They're assuming that you have the information readily available. That's why they don't give the extensions. And that's why it's so important for companies now to be proactive and get all that information before customs comes asking.
Emil Stefanutti: And since we're talking about documents, one one thing that also think caught my attention was the foreign document comparison, right? I think that's another one that
Tom Gould: Yeah.
Emil Stefanutti: was interesting. And essentially CBP considering whether importers should obtain, retain, or submit documents that foreign exporters provide to their own customs authorities. which may include export declarations, commercial invoices, you know, packing lists, certificates of origins, and so on. So I guess the obvious enforcement use is comparison and and does the value declare on export match the value declare in the US? And does the quantity match and does the product description match and so on and so forth? So Mark, how significant would that be? And would this be one of the most consequential changes to imported record keeping in in years?
Mark Tallo (ST&R): Yeah, I guess I guess it would be. in in the sense that, you know, it is information that has a totally different audience and a different set of rules and regulations built around it, right? Each country will create their export requirements based on the policy goals that they're tr trying to achieve or understand or the statistical recording, right? and so the fact that the you know value reported on export may not match the value on import, I don't know how relevant that will be. You could you could have an exporting entity who's selling to a trading company in a third country at you know a dollar a unit and then that trading company may sell to the U the the US importer for dollar twenty, right? And when you compare a dollar to a dollar twenty, I I don't know how relevant that is. classification similarly, while generally harmonized, you know, I and I know I know Tom has you know told importers this too. You know, regardless of what your vendor is classifying the the good as, y you should do your own independent classification work because the classification rules in country, you know, A may not be the same as the US. and even so, you know, it's really only harmonized six digits and you know, so there are there are a lot of reasons that the export information may not be a great benchmark to compare US import information. And I think, you know, part of what the regulations and rulings team was kind of talking about at the summit was, you know, what information on the export document should we be looking at, right? How should we be using that? Because I think even even they are trying to understand how to best use that information going forward.
Tom Gould: You know, I agree with everything that Mark said. And you know, one of the things, again, this is goes back to the concept that customs doesn't really understand business and how business works. If you think about imports and inco terms that are being used by companies, of the eleven inco terms, only one allows the importer access to that export data. Right. If you're importing under Xworks terms, then you as the importer are responsible for exporting and getting the goods out of the country. But under all the other terms, it's the supplier's responsibility to clear customs for export out of their country. You know, another thing to think about is we in the United States have rules and laws in place that make it illegal. for US companies to provide export information to f anyone outside of the US, foreign governments, foreign customs authorities, foreign suppliers or foreign vendors, suppliers, whatever. It it's it's not allowed. And so that's gonna be some hurdle I think that CBP is gonna have to get over if they really do want to pursue getting that export information. And I agree with Mark is that you know, sometimes a discrepancy in between one, you know, an export and the subsequent import is an indication that there's an issue. But I think that more often than not, there are perfectly legitimate reasons for that information to be different.
Emil Stefanutti: Yeah, no, I agree with that. And I imagine, of course, there's the very practical complexities like different languages or different product descriptions or classification systems or evaluation concepts and and whatnot. So we'll we'll have to see how that that plays out. And moving quickly towards more of the technology, and we we touched on it A little bit the beginning of the conversation and obviously i AI appeared throughout the summit and and I think one session described the goal as moving from reactive analysis after an event to a proactive and predictive posture, which I think is consistent with what we've been sort of seeing and hearing lately. and I even saw an attendee recap, you know, that says CBP officials discuss using AI to identify violators and act more quickly, which I think, you know, is consistent with what you and Mark have been saying in in this in this conversation. So Tom, you know, what does AI allow CBP to do today, right? That would have been impractical even five years ago, and is is the biggest e you know change speed? or the number of transactions it can review or the ability to connect sort of patterns across importers, addresses, suppliers, products, brokers and and so on.
Tom Gould: You know, I think it's all the above. And I I kind of like to compare what was done in the past to what's happening today when addressing this question. So if you think about in the past, remember every single customs entry is a separate transaction for customs purposes. You know, it's not like when you're dealing with the IRS and taxes where you file a tax return that summarizes everything the business did for the year. With customs entry, each entry stands alone unto itself. And yes, somebody at Customs could look at an entry and compare it to the last entry, but it's hard to do in any in any scale and without technology. But now, with today's AI type of technology, it's far simpler for comp Customs or for companies to analyze data looking for patterns. You know, one of the things that I like to point to that we've seen over this last year is the whole refund process, the refund of AIPA duties in the CAPE system. Well, customs clearly integrated technology like AI technology to review the data on the entries before the refunds were issued. Prior to CAPE, All of those refunds were looked at one at a time by somebody at Customs. And so what we see happening is Customs is scrubbing that data on the entries where the company is claiming refunds. And what we're seeing is we're seeing situations where customs is actually correcting errors in mass before they're issuing refunds. Right. So I've seen situations where a company imported products from China, they paid the AIPA tariff, but they didn't pay the old Section 301 tariff that was applicable. And instead of finding that on one entry or an entry here and there, customs found it on every single entry where the error was made. Again, because they're using this technology to do that. And I know that we're doing the same thing at Gaia, where we're able to help companies by proactively looking at that data. and finding those errors again in mass so that companies can correct them before customs finds them. And so that I think is really the the one of the bigger use cases right now that customs is actually making of AI technology, and that's looking at the data.
Mark Tallo (ST&R): And I I think I think
Emil Stefanutti: Yeah.
Mark Tallo (ST&R): that's a great that's a great point, Tom, to kind of because I think I think a lot of the focus is on the targeting, right? To targeting changes in origin or value based on, you know, tariff ch changes. But but on the the flip side of that is, you know, we are seeing customs use technology to be able to issue mass refunds quicker, right?
Tom Gould: Yeah.
Mark Tallo (ST&R): and
Tom Gould: Yeah.
Mark Tallo (ST&R): and and that not only in in the sort of AIPA context, but but also in ordinary protest type work, right? if you have you know mass changes to some of the other t tariff regimes under 232, right? And you have to fix a thousand entries and and adjust the adjust the value and get get a refund, whether it's for US content or other, right? Import offset in the auto context. customs is is looking to sort of ways to take that information in the protest context and and automate it, right? To to automate those those refunds. So I think, you know, again, the the trade and customs have work to do to figure out how how that process is more seamless, right? To to take, you know, data and information that Gaia has found, you know, all of these adjustments that that importers should should be claiming, right? and how do you get that through into a protest in a data file that is easily di digestible by CBP so that so that they can remove a lot of that manual work and just issue refunds right through through those prop processes. So I see that as as a real, you know, opportunity for the the trade and customs to kind of connect and synchronize the formatting of that information to make it much easier for importers to request and receive money.
Emil Stefanutti: And and I wonder, you know, C BP was, was also very clear that humans need to remain in the loop, right? When companies use AI, I think that has been made abundantly clear lately. So, Mark, do you see CBP applying that same standard to its own use of technology? I mean, when an automated system flags a shipment importer or transaction, how much meaningful human review you know, should occur before that flag creates a hole or an investigation or the enforcement consequence.
Mark Tallo (ST&R): Yeah, I I certainly I certainly think C B P is very much of the mindset that that human interaction has to occur, at least in the validation stage. Maybe not in targeting, right? Targeting it may be enough to have an algorithm say, Hey import specialist team, right? Look at look at this entry, ask questions about that entry, you know, have AI review that information, but then look at the report and figure out what type of enforcement action you should take. I certainly think CBP will sort of use AI to sort of facilitate its work, but not certainly not supplant the decision making of an import specialist, at least in the next, you know, five years.
Emil Stefanutti: Yeah, and we could be doing this all day. I mean, especially with the two of you, this conversation can go on and on, right? That there is so much depth and and value in this. And and I didn't wanna, you know, kind of close today's conversation without touching on forced labor, transshipment, trade fraud, right? These these were very big things. you know, obviously We we heard about, you know, all of these different things and A D, C V D, evasion, broader trade fraud. And these are kind of different legal regimes, but they share a common problem, right? the answer often seeds beyond the first year supplier. So Mark Are we reaching the point where a supplier certification is no longer meaningful by itself or and what evidence should an importer expect to have when sourcing from a higher risk product category or region?
Mark Tallo (ST&R): Yeah, I I dare dare to say we are past the point where a supplier's certification is sufficient, right? in forced labor that has certainly been the case, but now the trade is on notice that you you have to have more information, right? And I think a lot of those enforcement areas that you identified or customs identified, right? Transshipment, AD, C V D, Force Labor, you know, all of those at its core are about knowing knowing a product. Who made it? Who made the inputs that went into it? Where did that occur? Right? Getting beyond that. tier one to really understand how and where the product was made and with what right is going to be kind of the task of trade to really figure out how they gather that information on a product basis and are able to provide that to CBP That's that's sort of the critical element that all of those different issues are triangulated around.
Emil Stefanutti: Yeah, that that makes sense. and Tom, I wanted to pick your brain on another subject very quickly. And you know, there was a conversation about ACE. And you know, you and I at Gaia, we we you know, we keep dealing with data, right? and and so, you know, sort of turning very kind of briefly to the infrastructure behind all of this, right? And ACE modernization session focused on the next one to two years, including greater automation and more seamless information exchange with trade systems, which sounds awesome. But do you see ACE becoming more than a filing platform? And is it evolving into the data layer through which CBP can connect importer identity and supply chain evidence, targeting payments, corrections, enforcement? I mean, do you see that?
Tom Gould: Yeah, you know, yes, first of all, yes, I do see that as the case, but you also have to really understand what ACE is. ACE is not a program like Microsoft Word. ACE is a whole platform. ACE has lots of modules, it does lots of things. ACE is the system where brokers file the entries. ACE is the system where carriers file the manifest information. ACE is the system where importers can go in and run reports, but each is using a different piece of ACE, a different part of ACE. To me, ACE is a really decent large warehouse of data. And to me, the weaknesses in ACE, the weak areas in ACE right now is the ability to communicate that data in and out of ACE. The trade, to the carriers, to the importers, to the brokers, but also to customs, to the government agencies, to governments. And you know, in some ways I blame the trade for that because the trade and the brokerage community has really pushed to maintain the status quo as far as the communication protocols are concerned. So for example, when a customs broker files an entry with with in in ACE, The communication protocol or the pipeline between the broker system and the ACE platform is really antiquated. It's it it's it's really antiquated. It goes back to the days of punch cards. and if you think about if you're an importer and you want to run a report and you want to pull that data out of ACE to do some analysis with it. You download an Excel spreadsheet. Well, that may not be as antiquated as the way brokers get the data in, but it's still kind of antiquated. And so one of the things that I heard that I've actually been pushing customs for years on, but I years on, but I I heard at this summit, and I'm hopeful that it's going to happen, is that I think customs, I hope customs is starting to look at building some APIs, modern technology. It's used to communicate data between systems. And what that will do, first of all, it's going to allow importers to much more easily pull the data and analyze the data from the system. But it'll also allow the brokers and the importers to provide customs with more data, more timely data, more accurate data, and much more detailed data. You know, if we think about right now, the customs broker files the entry data. And if customs wants to see the invoice, it's scanned and uploaded in via the DIS system, which is another another part of ACE. But what customs is seeing is they're seeing the invoice as a PDF. And they may have some tools to scrape the data and to look at that data. But in reality, they're not. They're humans that are doing that. But as customs develops new APIs to allow for better input of data and export of you know, input and output of data. Then we're going to see more requirements for more data to be provided electronically in a structured format. And that's going to be a hurdle for a while for companies to get used to. But I think in the long run, it's going to benefit the government and it's going to also benefit the compliant importers that have systems in place to manage that data and to. provide that data. So instead of having to print a PDF and scan it and upload it into the system, there'll be ways for companies to simply pass that data directly to the government.
Mark Tallo (ST&R): yeah, I I think that ace has kind of, you know, slowly in the background kind of snuck up on everyone, right? it's early days it was, you know, it was developed and there were problems and I think the trade kind of wrote it off for a while, but more recently virtually everything trade related happens through Ace whether it's entry reviews or changes, right? Protests,
Tom Gould: Okay.
Mark Tallo (ST&R): all of that happens in the system, but by by someone, whether it's broker, C B P or others. W one of the things I was that I was most surprised by was hearing from I think it was the CTO of CBP indicating how many, you know, hacking and attacks the ACE system gets on a daily basis. And so, you know, when when users complain about passwords expiring in forty five days and you know the different security features that are built in, you know, that that really made me realize just how critical that system is. And and building in APIs like I'm I am sure, and I don't know the technicalities of that, whether that is more or less secure from a system standpoint, but but I'm sure anything that they do to to touch ACE has to go through this mindset of of security.
Emil Stefanutti: Yeah, for sure. so Mark, just wrapping up, I'll have one more question, short, short question for you. so I guess by this time next year, what will be materially different about the way companies import into the US?
Mark Tallo (ST&R): What won't be. no.
Emil Stefanutti: Ha ha ha.
Mark Tallo (ST&R): No. You know, I I think in terms of material differences, I think I expect, you know, a year from now, companies will have much clearer rules of the road with regard to what customs expects and how importers can import goods in a compliant way, right? I fully anticipate, you know, it will be, you know, not just telling customs what's in the box, but where did it come from? Who made it? Who who shipped it? Right? Who is who is entering those those numbers, right? What is your entity like in the US? You know, do you have a sufficient nexus to the US to be an importer of record? Or is there someone else who should be that importer of record? Right. All of those things I think we we are at a bit of an inflection point in, you know, the trade space. So I guess I said what won't be the same a little facetiously, but I I think there there will be more that is different than the same in a year from now.
Emil Stefanutti: Yeah, and I guess for compliant companies that will create additional work, but it also creates the opportunity to build kind of stronger processes before CBP asks the questions. we'll see. And hopefully Mark we'll we'll talk again. I'll put a pin on it and and log the calendar for one year from now. we'll review. you know, the answers that we thought about today and see how close we were. so
Mark Tallo (ST&R): Yeah.
Emil Stefanutti: Mark, thank you again for joining us and helping us make sense of a very consequential summit. I appreciate your time I still have a bunch of questions I would want to ask, but we'll we'll look for another time. So thank you again for your time, Tom. you know, always great to have your perspective on these things. I'm always impressed with how much you know about these things and how easy you make it for people to understand. So for everyone listening, thank you for tuning in to another episode of the Trade and Tech podcast. we'll see you again next time.
