Earlier this month, U.S. Customs and Border Protection (Customs) announced that it plans to expand its first three Centers of Excellence and Expertise (CEEs) over the next 12 months to cover their entire industries. Included in this first wave of fully implemented CEEs is the CEE for Pharmaceuticals, Health & Chemicals. With this expansion, life sciences importers should anticipate some changes. The difficulty is deciding whether the changes will be positive or not, and the answer is likely to be a mix of both.
Although the Pharmaceuticals, Health & Chemicals CEE is currently processing entries of selected member importers, Customs intends to expand the CEE so that it processes all entries for life science importers, including pharmaceutical, healthcare, and medical device importers regardless of the importer’s status under existing trade partnerships such as Customs-Trade Partnership Against Terrorism (C-TPAT) or the Importer Self-Assessment (ISA) program. Customs originally announced this expansion in March, but did not previously provide any insight into its implementation timeline.
From its recent announcements, Customs intends to be cautious and deliberate about the proposed CEE expansion to allow for processing all importers of Pharmaceuticals, Health and Chemical products. However, this CEE expansion is revolutionary in its potential national impact, and the jury is still out on the long term impact and effectiveness. Life sciences companies will be part of a “test case” that provides a blueprint for future importers’ expectations as to how the broader CEE shift will facilitate trade.
Customs designed the CEEs to operate as virtual organizations, with processing out of various ports of entry, but centralized at a single location. The CEEs have the stated goal of enhancing trade by having import specialists with focused knowledge of the industry, as well as familiarity and experience processing life sciences imports. This may lead to expedited processing and consistent treatment. It may even lead to increased collaboration and coordination with other government agencies such as the U.S. Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) – which is desperately needed. To be sure, there are many potential positives that the CEEs can provide when they are industry focused and educated on the imported products.
On the other hand, more knowledgeable import specialists may also lead to increased agency scrutiny. As a result of consolidating by industry, the CEEs will likely become more adept at identifying errors, inconsistencies, and import risks. When compared against importers with demonstrated best practices, those less experienced importers may be at higher risk for compliance inquiries, audits, or enforcement actions. For example, if eight out of ten pharmaceutical importers participate in Customs’ Reconciliation Prototype as the mechanism to report required import value adjustments such as royalty payments, foreign clinical trial expenses, or transfer price adjustments, it will raise the question as to why the other two importers operate under a different paradigm. Similarly, the agency may take a second look at placebo classification practices based on its increased visibility, or more carefully compare and review duty preference programs such as use of the Prototype Provision or Nairobi Protocol. Certainly, the CEE will become more adept at spotting compliance gaps for life sciences importers.
Before this CEE change takes effect, life sciences importers should consider completing an internal risk assessment of their import operations, take steps to shore up recognized gaps, and manage identified import compliance risks. Although we are cautiously optimistic that the CEEs will expedite processing and increase consistency between ports and the FDA, a healthy dose of cynicism is probably warranted, and since CEEs look like they are here to stay, life sciences importers should take steps to prepare.