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What is the story about?
The Indian Customs administration is speeding on the easing of restrictions and simplification of processes superhighway. As a part of this simplification process, the Indian Customs is also rationalising rates of duty which in effect has meant reduction in the rates. The spate of multiple Free Trade Agreements (FTAs) commitments has accelerated this process; the MFN rates have also largely kept pace.
The US customs administration, however, appears to be moving in the opposite direction.
The reciprocal tariffs announced on April 2025 under the Emergency Economic Powers Act to address ‘large and persistent annual US goods trade deficits’ set the tone. Tariffs ranging from 11% to 49% were proposed with higher tariffs for some countries. The Supreme Court of US questioned the legitimacy of the use of emergency powers and struck it down —the consequential refunds of more than US$166 billion are currently being processed.
The latest is the executive order issued on June 3, 2026 ‘strengthening customs enforcement’. The order states that customs enforcement is essential to the national security, foreign policy and economy of the US. It stresses the need for effective customs enforcement to prevent “the importation of unlawful and dangerous goods; ensures importers of record (IORs) are correctly identified and accountable for duties owed; and guarantees compliance with numerous Federal laws.”
The order highlights that customs reforms are long overdue and that it is riddled with “systemic inefficiencies, loopholes, insufficient enforcement mechanisms, and outdated processes“, which have been exploited by “malign actors” which harm Americans. In this background the order suggests that reform with a “focus on protecting national security, promoting lawful trade, ensuring the timely collection of duties, modernising systems and processes, bolstering compliance mechanisms, increasing transparency, and protecting Americans and the domestic economy” was necessary.
As part of the reform the order proposes to impose stringent requirements on US IOR’s. They have been defined to mean a United States citizen or a lawful permanent resident in the case of an individual. In the case of an entity, the IOR should be located in the US, and at all times have controlling beneficial owner(s) who are US citizens or lawful permanent residents and own significant amount of real property, or ‘sufficient tangible assets’ in the US. The tangible assets to be maintained are as determined by the US Customs & Border Protection (CBP) as being necessary and sufficient to ensure compliance with US laws.
Further the IOR is expected to provide to CBP anticipated import volumes, year organized, ownership and beneficial ownership disclosures, business affiliation disclosures, and domestic asset disclosures, and “any other data” that CBP deems necessary. Foreign IOR’s have been defined as those who are not US IORs. These conditions are justified especially for foreign IORs on the ground that such an IOR would need to demonstrate “that the revenue would be fully protected and that compliance with the laws, regulations, and instructions enforced by CBP would be assured”.
Further the order highlights that foreign IORs with assets, operations, and key individuals located overseas can easily evade payment of amounts owed and other compliances with U.S. customs and trade laws. All IOR’s are expected to maintain “good standing”- and if found to be not so would not be allowed to import into the US. It has been proposed to establish enhanced vetting procedures, including recurrent vetting, for all individuals and entities seeking to conduct activities directly related to the importation of goods. Timelines have been prescribed for the implementation of the Executive Order.
Are they lessons to be learnt for the Indian Customs administration from this order? In our anxiety to be seen as promoting ease of doing business are we relaxing controls which could hurt revenue and security interests? We could examine closely the concept of IOR. We have too many instances of ‘ghost’ importers who do not seem to be in existence. The basic requirement for an entity to import is to have an import-export code (IEC).
This is given by the DGFT. No physical verification is conducted at this stage about the veracity of the details submitted — the details are cross verified with the IT database for validation of the PAN. The bank account details are sought to be validated electronically. It should be remembered that the IT authorities have outsourced the process of issue of a PAN to outside entities -again no physical verification is done .The validation is done is on the basis of the IT data base. Thus in actual terms on the basis of unverified details , each agency relies on the integrity of the other agency.
Thus it is when investigations are initiated against fraudulent imports by agencies like the DRI, it is found that the importer is not in existence at the address given. This is one reason scores of abandoned containers are lying in various ports and ICDs — the importer choosing to abandon the suspect consignment when there is a threat of enquiry / examination of the container secure in the knowledge that enquiries will not be able to reach him since all details available are fake. Asset details where declared are rarely actually there. Yes, the Indian Customs does have a robust risk management system which sifts the risky importers /entities – and ensures that only importers of ‘good standing’ import.
It would be worthwhile for the Central Board of Indirect Taxes & Customs (CBIC) to examine closely the Executive Order. Trust but verify should be the mantra — and such verification should be done before the stable doors are opened. While it is essential that the right balance between enforcement and facilitation is maintained, it will not hurt to examine if that balance now is tilted too much towards facilitation at the cost of revenue and security.
—The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs (CBIC). The views are personal.
The US customs administration, however, appears to be moving in the opposite direction.
The reciprocal tariffs announced on April 2025 under the Emergency Economic Powers Act to address ‘large and persistent annual US goods trade deficits’ set the tone. Tariffs ranging from 11% to 49% were proposed with higher tariffs for some countries. The Supreme Court of US questioned the legitimacy of the use of emergency powers and struck it down —the consequential refunds of more than US$166 billion are currently being processed.
The latest is the executive order issued on June 3, 2026 ‘strengthening customs enforcement’. The order states that customs enforcement is essential to the national security, foreign policy and economy of the US. It stresses the need for effective customs enforcement to prevent “the importation of unlawful and dangerous goods; ensures importers of record (IORs) are correctly identified and accountable for duties owed; and guarantees compliance with numerous Federal laws.”
The order highlights that customs reforms are long overdue and that it is riddled with “systemic inefficiencies, loopholes, insufficient enforcement mechanisms, and outdated processes“, which have been exploited by “malign actors” which harm Americans. In this background the order suggests that reform with a “focus on protecting national security, promoting lawful trade, ensuring the timely collection of duties, modernising systems and processes, bolstering compliance mechanisms, increasing transparency, and protecting Americans and the domestic economy” was necessary.
As part of the reform the order proposes to impose stringent requirements on US IOR’s. They have been defined to mean a United States citizen or a lawful permanent resident in the case of an individual. In the case of an entity, the IOR should be located in the US, and at all times have controlling beneficial owner(s) who are US citizens or lawful permanent residents and own significant amount of real property, or ‘sufficient tangible assets’ in the US. The tangible assets to be maintained are as determined by the US Customs & Border Protection (CBP) as being necessary and sufficient to ensure compliance with US laws.
Further the IOR is expected to provide to CBP anticipated import volumes, year organized, ownership and beneficial ownership disclosures, business affiliation disclosures, and domestic asset disclosures, and “any other data” that CBP deems necessary. Foreign IOR’s have been defined as those who are not US IORs. These conditions are justified especially for foreign IORs on the ground that such an IOR would need to demonstrate “that the revenue would be fully protected and that compliance with the laws, regulations, and instructions enforced by CBP would be assured”.
Further the order highlights that foreign IORs with assets, operations, and key individuals located overseas can easily evade payment of amounts owed and other compliances with U.S. customs and trade laws. All IOR’s are expected to maintain “good standing”- and if found to be not so would not be allowed to import into the US. It has been proposed to establish enhanced vetting procedures, including recurrent vetting, for all individuals and entities seeking to conduct activities directly related to the importation of goods. Timelines have been prescribed for the implementation of the Executive Order.
Are they lessons to be learnt for the Indian Customs administration from this order? In our anxiety to be seen as promoting ease of doing business are we relaxing controls which could hurt revenue and security interests? We could examine closely the concept of IOR. We have too many instances of ‘ghost’ importers who do not seem to be in existence. The basic requirement for an entity to import is to have an import-export code (IEC).
This is given by the DGFT. No physical verification is conducted at this stage about the veracity of the details submitted — the details are cross verified with the IT database for validation of the PAN. The bank account details are sought to be validated electronically. It should be remembered that the IT authorities have outsourced the process of issue of a PAN to outside entities -again no physical verification is done .The validation is done is on the basis of the IT data base. Thus in actual terms on the basis of unverified details , each agency relies on the integrity of the other agency.
Thus it is when investigations are initiated against fraudulent imports by agencies like the DRI, it is found that the importer is not in existence at the address given. This is one reason scores of abandoned containers are lying in various ports and ICDs — the importer choosing to abandon the suspect consignment when there is a threat of enquiry / examination of the container secure in the knowledge that enquiries will not be able to reach him since all details available are fake. Asset details where declared are rarely actually there. Yes, the Indian Customs does have a robust risk management system which sifts the risky importers /entities – and ensures that only importers of ‘good standing’ import.
It would be worthwhile for the Central Board of Indirect Taxes & Customs (CBIC) to examine closely the Executive Order. Trust but verify should be the mantra — and such verification should be done before the stable doors are opened. While it is essential that the right balance between enforcement and facilitation is maintained, it will not hurt to examine if that balance now is tilted too much towards facilitation at the cost of revenue and security.
—The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs (CBIC). The views are personal.
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