Trump's Customs Reform Executive Order, Explained | Decoding Cross-Border Ecommerce | Ep #80

Yesterday, the EU dropped its July 1 implementation guidance. Then, at the end of the day, Trump dropped an executive order on U.S. customs reform. The deja vu just keeps coming.

In this episode of the Decoding Cross-Border Ecommerce podcast, Clint Reid, Founder and CEO of Zonos, and Aaron Bezzant, Zonos' Head of Global Trade Strategy, are joined by Jan Hoelterling, Zonos' Head of Customs Strategy, to break down what the executive order actually says and where the real changes are landing.

They walk through the central distinction the EO is drawing — U.S. importer of record vs. foreign importer of record — and how the post–de minimis world exposed loopholes that the executive order is now closing: shell companies with no U.S. footprint, $50K bonds against $500K liabilities, paper Wyoming LLCs spun up in 15 minutes, and the "B2B-TOC" wholesale-value workaround that never really passed the smell test.

The conversation also covers the kill switch (foreign IORs barred from informal entries), the new IOR registry with actual teeth, accountability cascading to brokers, freight forwarders, and custodians, the wild new requirement that importers furnish foreign-country export documentation, a 50% minimum penalty floor, no mitigation for repeat offenders, faster seizures, and the 180-day clock on CBP guidance.

🎧 If you ship into the U.S. — directly or through a marketplace, consolidator, or carrier — this is the EO to understand before CBP's guidance lands.

Chapters

[00:00:00] The EU guidance and Trump's customs reform EO — both in 24 hours
[00:00:39] Welcome Jan, and a hole-in-one dad joke
[00:01:14] U.S. vs. foreign importer of record today
[00:02:44] How removing de minimis exposed the IOR loopholes
[00:06:31] The "why" behind the EO: accountability and closing loopholes
[00:07:21] What it now takes to be a U.S. IOR — real entity, real footprint
[00:10:38] The kill switch: foreign IORs barred from informal entries
[00:12:42] The IOR registry, "good standing," and accountability extending to brokers and forwarders
[00:15:14] The 180-day CBP guidance clock
[00:16:06] Export–import documentation reconciliation: if you want to lie, you'd have to do it twice
[00:18:17] Penalties, seizures, and the new enforcement teeth
[00:21:11] If you've gotten creative — clean it up now
[00:22:11] B2B-TOC, individual IORs, and the path forward

Transcript

SPEAKER_01 0:06

Welcome to another episode of the Decoding Cross-Border E-Commerce Podcast. Aaron, uh, we were here yesterday having a conversation about uh the EU guidance that finally dropped July 1st, and Jan wasn't present for that. He missed out. And then at the end of the day, Trump dropped you know the executive order on customs reform, which we kind of knew was coming. I mean, we're we're I um knew something was gonna happen probably here. We knew that it needed to. Needed to happen. There was there were problems that needed to be rectified. Yeah, but so, anyways, um would have loved to have Cody on the podcast of our president Cody would be great. But he's did you know he's out golfing today? No, dead serious, he's actually out golfing today. Is he really right now with Governor Cox? Yeah. Wow. I know I'm like, dude, why don't I get a go? It's because that's what happens when you live in northern Utah. We live in southern Utah. I don't get I don't get invited to go golf with the governor. Yeah. What the heck?

SPEAKER_02 0:59

Look, the reality is the only time of golf I do is when I don't have to pay for it. And I don't golf much, but when I do, do you know what I always bring with me is an extra pair of socks. Do you know why? No. In case I get a hole in one.

SPEAKER_01 1:14

Oh boy. Okay, hey, let's let's uh let's get going then on this uh this executive order. So first off, I want to uh I'll say that the big thing that's being defined here in this executive order is the difference between uh US import of record and a foreign import of record, right?

SPEAKER_02 1:34

That's I would actually really like to know current state before like and the why behind this. Like who can act as importer of record right now, Jan?

SPEAKER_00 1:43

So there's technically two definitions. The first one is if you're a US person and that has a couple of requirements. So you have to be a US citizen or a permanent resident. Um, you also have to have uh typically a company incorporated. And then in either case, there's a registration with customs and border protections called a Form 50.

SPEAKER_01 2:04

So you said you have to be a US citizen, though, today? Yes, to be an importer of record or a business, right?

SPEAKER_00 2:10

Is that correct? Okay, right. Yeah, yeah. But there's also the category of foreign importers of record, which is um what most companies and e-commerce marketplaces that are outside of the US have done. And uh that has had lower requirements, but it's also caused some problems which have led to this execution.

SPEAKER_02 2:29

So you're telling me they got a looser set of rules if you're not a in the US than if you're actually in the US?

SPEAKER_00 2:36

In a way, yes, it wasn't meant to be that way, but people found loopholes and managed to get around some of those.

SPEAKER_01 2:44

All right, so um this was building up because when the de minimis remove was removed, right? August last year, what happened after that with these tariffs? Like, right, what was the incentive now for foreign importers?

SPEAKER_02 3:00

Oh, wait, you mean when you increase the cost of tariffs, natural behavior is to try to mitigate those costs in any way possible. Yep. There's probably compliant ways to do that and maybe not as compliant ways to do that. And I think every creative uh tool was used to try to mitigate those tariffs. That's what I saw.

SPEAKER_01 3:23

Let's say you had a $50,000 bond, and you're a foreign shell company, you know, you're a foreign company, and you just are importing under your this little import of record, you know. Um, you have you're the importer record in the US, you get an importer record number as a foreign business, and you're undervaluing your goods, and CBP comes after you. And and Jan, I have a $50,000 bond, and I owe five hundred thousand dollars in let's say, let's say CBP wants like they're like, nope, this was this was all non-compliant. How are they gonna get that money? That's the problem. They don't. How much do they get?

SPEAKER_00 3:59

The bond company will effectively pay out up to the maximum of the bond and of course try to collect, but then you're dealing with all kinds of foreign laws, you're dealing with uh people that are halfway around the world and where you may just not have the legal standing to really go after them. And they just shut down the company and opened a new one. Oh my gosh.

SPEAKER_02 4:18

How how hard is it for them to open up a company? Uh to be the one 15 to 30 minutes. And I think that's where you see them in uh there's there's common states that they can easily spin up a business in.

SPEAKER_01 4:32

Says foreign importers are not similar situated. They account, this is what the executive order, for substantially higher volumes of low value articles. And their penalties are core, you know, are correlate poorly to the value at risk, right? So they're just it's it's there's a misalignment. There substantially higher volumes of lower value articles, like the lower value.

SPEAKER_02 4:56

Yeah, I I think when I look at it, you know, a year ago. Man, it's we're the time's flying here. Um when you still had de minimis and you had the type 86 entries, like the IOR stuff didn't matter as much because things were just flooding in, everything was duty-free. Um now, as they try to increase tariffs, remove de minimis, try to tighten up compliance, it's it seems like it's exposing this problem and putting a magnifying glass on it. Whereas before you always this always existed for the higher value shipments, but wasn't the scale of a problem as it is with these hundreds of thousands, millions of shipments of uh of low-value goods coming in um from different parts of the world. And now the games that are being played to to create these entities and stuff are just being exploited, these loopholes are just just becoming massive, and that's that's where the executive order is coming from. That's my read on it.

SPEAKER_00 5:54

Aaron Powell There's one more dimension to this, and that is that anybody that uh imports, let's say, a container's worth of products and sells it at Target or any any big store, if there is serious concerns about the product safety, if there's lead paint or something that harms kids, that is also where with a US importer of record, the Consumer Product Safety Commission can and has taken action, prohibited items, um, imposed penalties and the like. And with all these things that are just coming directly as low-value shipments, there's there's no such mechanism.

SPEAKER_02 6:31

I I think the big thing is accountability in all of this. And this is where um just to kind of summarize the why behind this, the second paragraph of the executive order, I think, does a great job of this. Um in fact, they use the word loophole in here, and and they they say customs reform is long overdue. Systemic inefficiencies, loopholes, insufficient enforcement mechanisms, and outdated processes have created opportunities for malign actors to evade federal law. Examples of noncompliance include undervaluing imports, withholding critical information about IORs and the goods being imported, and avoiding payment of duties through various arrangements and schemes. And that's kind of and then it goes on to say that what that does. These actions threaten national security, undermine foreign relations, disadvantage domestic businesses, and harm Americans. That's the why. Yep.

SPEAKER_01 7:21

Now that we have the why, now let's talk a little bit about the what. What is now, because it defines first what is a US IOR, like a US, what can a US IOR? What is that? How is that defined? And then it basically says, and else you're a foreign IOR, right? Like if you don't meet these requirements, then this is this would then fall under the definition of foreign IOR, and they do define it a little bit. So uh what's a US IOR now under this new ruling? What what what what defines that? What are some of the things that have changed?

SPEAKER_00 7:52

So among the things that have changed is that you really have to have much more of a business entity in the US.

SPEAKER_01 7:58

So they want an entity that owns significant, like real US property, yes, right? Like assets, or a US citizen permanent resident. So it's like somebody they can go.

SPEAKER_02 8:15

Somebody to hold a cable.

SPEAKER_01 8:16

Somebody, yes, like you better either be a citizen and we can come after you. And if you're um not a US citizen, then you better be an a real entity. This is so we've watched this happen in our industry. We've watched companies just sometimes even consult and tell their their uh their merchants, oh, just get a you know, get a little business in Wyoming and do an import of then you can you can do a B2B to C movement, and in reality, there's really no Yeah, this this is the stuff that they're trying to stop. And it was non-compliant before. They are really coming down now. Like we're coming after you.

SPEAKER_02 8:56

Yeah, you can't just spin up a a paper corporation with no assets, no employees, nothing, and and call that the IOR and put a lower value, a wholesale value, and and import it yourself, right? To ship it to yourself to B2B and then and then send it on. None of that pass the smell stuff before smell test before, and it definitely is going to be much more highly scrutinized now and non-compliant now.

SPEAKER_01 9:23

So so that the guidance coming now will come from CBP. Shall prioritize preventing entries from using shell companies, sham transactions, or artificial corporate or organizational structures in an attempt to qualify as a US IOR. So there's still definitions that are gonna come from CBP guidance, right? On this. Um okay, so if you're a UK or EU brand, can you just open a US subsidiary, declare yourself a US importer? If you put enough money behind it.

SPEAKER_00 9:58

Yeah, right.

SPEAKER_02 9:59

So not in 15 to 30 minutes?

SPEAKER_00 10:01

No.

SPEAKER_01 10:02

You would at least have to potentially buy a sub substance over form.

SPEAKER_02 10:07

Yeah, and this is where like there's ways to do this compliantly, but it's not if you if there's an easy button, it's probably not compliant, right? It's actually having a business, bringing inventory in, you know, yes, that's yep. There's a lot of things that need to be in place to actually be a legitimate create a real US footprint, right?

SPEAKER_01 10:26

Like you need like think like US footprint. I'm doing business truly in the US. Um okay. This was interesting. Foreign importers of record. Informal entries.

SPEAKER_00 10:44

What happened? Yeah, this is the one that puzzles me the most because they're saying that uh foreign importers of record would not be allowed to do informal entries. This is like the kill switch. Yes. And where this is gonna play out is in case of the big consolidators that have their own brokerages and that actually act as the importer of record on a lot of these informal entries. Um, we don't know yet how this is going to play out, but um, they may read this as a prohibition for them to act as the IOR on those shipments.

SPEAKER_01 11:24

So even everything we're talking about, like you're an e-commerce company, you set this.

SPEAKER_00 11:28

What are informal entries, what type of shipments are informal entries used for? So this is typically shipments under $2,500. So mostly for um e-commerce, small uh shipments, low value, not containers worth of stuff, but uh individual consumer shipments in most cases.

SPEAKER_01 11:46

So now if you're a foreign entity, you still can become a US IOR if you have all the substantial assets and all that, right? Like like so you you you can meet that threshold.

SPEAKER_02 11:56

But you but if you're but if you're a foreign IOR, you can only do formal entries and you have to have bonding in place that's sufficient, and you actually the foreign IOR has to be validated by CT PEP. Yeah, customs trading. Using a broker against terrorism, yeah, is CT PET. Like, so they've they made it really hard for foreign IORs to really do anything. A, they can't even do any low-value goods anymore. And then um, if they do want to do formal entries, there's some hoops they have to jump through to even be able to do that. Yes. So this this is definitely steering it to US IORs moving forward. Um, one thing I thought was was really interesting on this is um the aspect of the registry and being in good standing as well. So this isn't just like you're an IOR, now it's just like how good of an IOR are you?

SPEAKER_00 12:50

Yeah, and this one is interesting because uh at face value this isn't necessarily anything new. The government had the ability before to revoke people's authority to do imports if they had broken serious laws. But the focus here is really on an updated registry that is kept up to date and that is accessible to various entities. So there's there's actually teeth in this now, whereas before it was um it was more theoretical.

SPEAKER_01 13:22

Okay, so I had a I had a I had a shipment coming to the US. I was working with a broker, and we have a family business. We're bringing in some product from China, and um, I remember the broker was like, hey, can we just change the value on this? Because this is right when the tariffs went up. And he's like, You need to lower the value, you're gonna be paying too much in tariffs. I'm like, what are you talking about? I can't lower the value, right? No, I'm not lowering the value. And he's like, Well, we can use this harmonized code, we're gonna change it to this code. And it was crazy. What accountability? Do you still use that broker, by the way? No, no, now we own a brokerage. I'm not using that broker. Um, okay, but here's what's interesting because this this recurring vetting now is extending, like you were saying, Yan, beyond the IOR to affiliates, customs brokers, custodians of the bonded merchandise, and freight for orders. So they're there's they're trying, right? They're trying to say uh there's other people in the chain that will be held more accountable than they have in the past. Is that am I reading that right?

SPEAKER_00 14:25

Yes. Um, what has happened in the past is that with these uh e-commerce shipments, especially when type 86 was still around, there were some brokers that got into hot water and there uh they were suspended for up to 90 days. And that was about the only enforcement mechanism that customs had at the time. And as you can imagine, if you're a customs broker and you're being told for 90 days you can't do any clearances, that hurts the bottom line rather badly. But uh, this is really putting teeth into this now and uh will truly put non-compliant parties out of business completely. And uh that's why it will lead to um better compliance by all parties because nobody wants to be on the wrong side of that.

SPEAKER_01 15:13

How much time until isn't there like a time frame here until we get this guidance from CBP? I think it was 180 days.

SPEAKER_00 15:20

Is that accurate? It says within 180 days. Um it's not clear what mechanism this will take. If it's a notice of proposed rulemaking, then it still has a 90-day uh comment period, and then typically 30 days after that for the government agency to respond, and then the final rule is published. So this doesn't necessarily mean that 180 days from now we're in a new world, but it could also be an interim federal rule, and those can drop without any notice uh or uh comment period at all.

SPEAKER_02 15:49

I mean, regardless, it sounds like we're talking months, not years here of this getting there's some urgency behind it coming from the administration.

SPEAKER_01 15:57

Like this is like a whole vetting process now. Like this has gone from like, hey, checkbox, import of record, you're just spinning up all these IOR numbers to you're doing a whole like there's a whole vetting process. Um, and there's a lot to clean up too. Like like this is I wonder how many uh these IORs are gonna be inactive in the next uh you know uh ASAP. Something interesting. So it talks about okay, so within 90 days, importers must hand CBP the export documentation of the foreign exporter filled with its origin customs authority on the way out. So in these interesting.

SPEAKER_00 16:37

Yeah, help me out here, Jan. Because typically what has happened is that there has no there has been no way to tie together what somebody would file on the export side with what is being filed on the import side. So I might sit in Europe and I declare that I'm exporting something that's worth $50.

SPEAKER_01 16:55

And the export doc reconciliation with the import doc. This they're reconciling the values that people are lying about.

SPEAKER_00 17:01

Yes. They're basically saying if you want to lie, you have to do it on both sides and take double the risk.

SPEAKER_02 17:08

I've got lots of thoughts on that. It's interesting.

SPEAKER_01 17:10

Hey, so this it's yeah, yeah. Okay, we are so good at helping with this stuff, but that's uh that is within 90 days, importers must furnish the documentation or information that a foreign exporter was previously required to provide by their own customs administration before exporting to the United States. That's crazy. That's wild.

SPEAKER_00 17:31

All right, so this is actually gonna be pretty hard because in a lot of countries, this is completely electronic. There is no paperwork or anything. So this one, I see some technical changes.

SPEAKER_01 17:44

But it's just with low-value goods. I mean, we have visibility into the upstream transactions a lot of times, and so we have so much data. I think what's gonna happen over time is CBP is they're gonna see the good actors. So you say it's hard. The easiest way for CB customs and border protection to do this is you filter out all the good actors first, and then you're like that, but you've got to be able to wait to find the good actors, right? That you can prove that data, and we do some things to help with this, and then you can start focusing in on bad actors. And now it's just so we're more more enforcement's coming, harsher penalties, right? Um, what do you think that means? Harsher penalties is that gonna be defined, I think, in the guidance from CBP, or they're not gonna say what? Like, how how will that look?

SPEAKER_00 18:29

Well, there are a lot of penalties that CBP can already impose today, but my personal experience of working with CBP has been that uh a lot of times as long as you could show good faith, they would mitigate the penalties. And I've seen personally cases where a penalty of um $10,000 was mitigated down to $1,000, uh which is the difference between something rather painful and a slap on the wrist.

SPEAKER_02 18:57

But they're but they're putting a minimum penalty. Okay, that's what I wanted you to help understand. Minimum penalty floor of 50% of the assessed penalty, repeat offenders lose mitigation, and max penalties for non-compliant brokers. Those are kind of some of the bullet points I had in here. So are you saying the minimum I want to make sure I understand this minimum penalty floor of 50%? Is that where, like, hey, if you came in with a $10,000 penalty, you can only get that down to $5,000 now? Is that that is that how that works in practice?

SPEAKER_00 19:26

And there's other penalties that are much harsher than that.

SPEAKER_01 19:29

Right, right. And then there's no mitigation if this is a repeat offender.

SPEAKER_00 19:35

And also for customs brokers. So the bar is really going to be raised on customs brokers because they're expected to know better. And um the the individual that you mentioned, Clint, um, would find themselves in really hot water. Yeah.

SPEAKER_01 19:52

Okay. Faster seizures, more transparency. Um, so it says in other okay, seizure and disposal. This is the section. The secretary shall, to the maximum extent permitted by applicable law, take actions to expedite and enhance seizure and disposal of noncompliant imports. How does that work practically?

SPEAKER_00 20:13

Well, it starts with something being put on hold, and then typically a CBP officer or uh an officer of another government agency will inspect the goods. But then typically the process afterwards, if they think that a seizure is warranted, um, is still quite bureaucratic and takes a while.

SPEAKER_01 20:33

Okay, so that's what they're trying to fix is the actual seizure today is bureaucratic and takes a while. Yes. And they're trying to just like cut to the chase, we're taking your goods. Right. I see. This is going to be very interesting. We work, we see a lot of e-commerce imports today um under our own brokerage, and then we see uh even more e-commerce imports under a whole bunch of different brokers and a whole bunch of IOR dumbers out there too. So um now this is gonna be fascinating, but I would say, you know, if you're an e-commerce merchant and you've been told or seen companies that have uh done this, I heard there was a company that ended up getting um uh in trouble. This is before the executive order, like become compliant, like it just it's not worth it, right?

SPEAKER_02 21:24

Just just this is if you if you have gotten creative in recent months and you're participating. They're participating in these. Uh, how did it how did the executive order word it? Because look, this thing is targeting low-value shipments, so just know there is a ton of scrutiny, and this is reinforcing that and uh putting heavier restrictions around this. Um, I think a lot of people got a little bit of a runway, they had a leash to do some creative things that maybe they think are great long-term strategies. But the reality is if you you could be using one of those various arrangements or schemes that the executive order talks about, I would change that arrangement or scheme now and not wait for CBP to make you.

SPEAKER_01 22:12

I have a question. In this model, the B2B to C model, right? This is where it's like it's like super tricky. If the let's say somebody's acting as the merchant of record, the payment provider, like they're in the US, right? But then the importer of record is actually the individual. How how is this going to work? The individual doesn't know they're the importer of record.

SPEAKER_00 22:34

Well, and in the future, this will be even more difficult than it is now, because technically, for an individual to become the importer of record, they would have to give a power of attorney to a customs broker. And in the future, there is not going to be any employment.

SPEAKER_01 22:48

Well, and they're not bonded and they don't have any, it just seems like the individual importer of record. I received something in my house and I had no idea that I was the one that was responsible. Like I see that more and more just going away as well.

SPEAKER_02 23:02

Yeah, it'll be interesting to see how this rolls out because often on low-value shipments, the carrier's brokers acting as the importer record just to get the stuff moving in. And I wonder how that model is going to be impacted by this as well. Because there's a higher scrutiny on the brokers as well in this. So um a lot of questions. This just came out, and so I think for this podcast, this was a good initial.

SPEAKER_01 23:25

Look, we had like like four hours, you know, maybe to try to, if that, I mean, we did not have a lot of time to prepare, but yeah, that I think this is this is going to be an interesting one to watch.

SPEAKER_02 23:34

But the the biggest tell from this is just looking at the why, the problem that was created by the de minimis going away, and and their objective. And this helps you helps you understand how to stay on the the right side of this, um, which is just be compliant, just be legitimate. Don't don't try to get cute uh with with things just to save a buck because in the end it'll cost you.

SPEAKER_01 23:58

All right, Jan, we'll bring you back when the uh the official guidance comes out and we start, you know, we have something to actually dissect here, but uh this was this was fun. We gave Jan like 10 minutes to get ready for this. Like, Jan, guess what? We're doing a podcast. All right, appreciate it. Thanks, everybody. Thank you.