International customs management

The complete guide to understanding everything about customs formalities for cross-border shipments
guide complet for customs management
< introduction >

What information to declare when importing or exporting goods?

In order to determine the customs treatment reserved for a good during import or export operations, there are three essential concepts that you must know and master: the tariff classification, the origin of your goods and their customs value.

During the
customs declaration, the commercial designation of your merchandise must be
completed with the corresponding tariff classification. This tariff classification is the name given to your goods in the common customs classification, which includes more than 23,000 classification sections.

Both for import and export operations, this classification is essential for companies. From it depends on determining the rates of customs duties, the trade policy measures, the security standards, the prohibitions or embargoes measures, the common agricultural policy (CAP), the interior taxation or the foreign trade statistics compilation.

>This information must be transmitted to the customs authorities during each customs clearance, via the customs declaration.

It is therefore by anticipating and mastering this data that we can eliminate customs risk, and thus organize and manage international flows in the best interests of the company.

shipment
CHAPTER 1
< the goods and their tariff types >
General concept
customs nomenclature transiteo

During the
customs declaration, the commercial designation of your merchandise must be
completed with the corresponding tariff classification. This tariff classification is the name given to your goods in the common customs classification, which includes more than 23,000 classification sections.

Both for import and export operations, this classification is essential for companies. From it depends on determining the rates of customs duties, the trade policy measures, the security standards, the prohibitions or embargoes measures, the common agricultural policy (CAP), the interior taxation or the foreign trade statistics compilation.

The nomenclature is divided into 2 levels :

· The tariff position, made of the first 4 numbers, and globally determined by the World Customs Organization (WCO).

· The tariff subheading, made of the 5th and 6th numbers. The subheadings are globally determined by the World Customs Organization (WCO) (are globally determined by the World Customs Organization (WCO)).  The following numbers (7th to 10th) are determined by each customs territory, which decides the rules leading to refine the classification.

< the goods and their tariff types>
In the case of the European Union

In the case of the European Union :

· The Combined Nomenclature (CN) is constituted of the first 8 numbers.

· The Integrated Tariff of the European Communities (TARIC) is composed of the first 10 numbers of the nomenclature, and must be provided on customs declarations. (for export declarations, some member states of the EU only require the Combined Nomenclature).

The first 6 numbers of the nomenclature represent he Harmonized System (HS) position (S.H.), the globally applicable coding system for goods, which avoids multiple codes association with the same product.

The system guarantees a unique and methodical classification for every country using it (currently 195 countries, covering 95% of world trade) for goods traded internationally. It also allows the comparison of trade flows.

< the goods and their tariff types >

The key concepts of the customs nomenclature

The Combined Nomenclature (CN) defined at a european level, is composed of 8 numbers : the 6 first come from the Harmonized System, with 2 complementary numbers (subheadings from the HS responding to the statistics and pricing needs of the EU) . It mostly allows to determine import customs duties within the EU and to elaborate statistics about foreign trade.

The Integrated Tariff of the European Communities (TARIC) defined at a community level, is constituted of 10 numbers. The 8 first numbers correspond to the NC and the next 2 numbers are determining the european customs and commercial regulations for import within the European Union, via additional community codes (CACO). Eventual national regulations are now integrated in the 10 numbers nomenclature (TARIC) as well, via additional national codes (CANA). These regulations can be consulted on the Repository Integrated Automated Tariff (RITA) on this link.

Repository Integrated Automated Tariff (RITA) is a regulations catalog, which index all the applicable regulations to goods, at a date, for an origin or a destination, to inform operators as broadly and accurately as possible. The database is updated automatically from the Community Tariff as well as national regulations.

CHAPTER 2
< introduction >

The origin of the goods

The origin of the merchandise can be defined as its customs nationality. It gives information about its obtaining or manufacturing country, a necessary data to apply the proper customs reglementation during importation.

In fact, a product 100% produced in a given country (agricultural crops, natural resources,…) comes naturally from this particular country. But what about a product whose several countries participated in the manufacturing ?

In this situation, there are two possible scenarios : the “non-preferential” origin and the “preferential” origin.

customs value transiteo
< the origin of the merchandise >

The non-preferential origin (NPO), or the common law origin

merchandise tariff classification transiteo

The non-preferential origin of a merchandise is equivalent to its common law origin. On the contrary of the preferential origin, goods always have a NPO. It is used to apply UE trade policy measures as well as establishing the statistics about the foreign trade and the origin marking, the “Made in”.

WARNING

The non-preferential origin must not be confused with :

– The provenance, geographic notion that refers to goods physical flows. For instance, a product manufactured in Spain, and then delivered in Germany by a French distributor, will have Spain as origin and France as provenance.

– The customs status of the territory (for example the UE), meaning that customs duties have been settled in the customs territory in question, and that the product is conform with the trade measures outside this territory.

– The European Conformity marking (Conformité Européenne) in the case of the European Union, which indicates if a product is in compliance with the european requirements in order to be commercialized in the territory.

– Thepreferential origin, which only concerns the application of reduced customs duty rates or 0% duty rate, and for which the specifics are detailed below.

The European Union, as for the majority of the member states, applies the World Trade Organization’s rule about the common law origin :

“The country to be determined as the origin of a particular good is either the country where the good has been wholly obtained or, when more than one country is concerned in the production of the good, the country where the last substantial transformation has been carried out. It must be economically justified, carried out in a company equipped for this purpose and having resulted in the manufacture of a new product or representing an important manufacturing stage”.

However, because of the absence of global harmonization regarding the non-preferential origin rules, the WTO rule is not necessarily applicable everywhere (the WTO’s website list all the countries applying their own preferential origin rules here).

< focus >
When to use preferential origin?

The non-preferential origin is used for :
– Import of goods, when the importer needs to fill in its customs declaration
– Export of goods, if the country of destination requires a non-preferential origin certificate. The Chambers of Commerce and Industry (CCI in France, IHK in Germany, Boards of trade
internationally) have the capacity to issue this document for any commercial purpose. The determining origin is based on the specific rules of the country of destination (if the country concerned has a corpus of non-preferential origin’s rules) or based on another method allowing to identify the country of origin of the goods.
– If the operator wishes to apply an origin marking on its products.

< the origin of the merchandise >
The preferential origin (PO)

The preferential origin allows to reduce customs duty rates or to apply a 0% duty rate when importing goods. Indeed, to help developing international trade, a large number of countries have signed free-trade agreements (FTAs) and economic partnerships (ETA), it results to the reduction or the deletion of customs duties, but only for goods directly coming from and towards the partner country. On the contrary of the NPO, goods don’t always have a PO.

In case goods have been manufactured from materials or components that are not from the partner country, hey must have been transformed enough (according to the rules established in the partner countries’ agreements) to be qualified as originating from this partner country, and therefore to benefit from the advantages of the preferential origin.

Moreover, the access to preferential rates depends on the presentation of a proof of the goods origin during the customs clearance process.

Depending on the legal framework, you might need these documents :

– A movement certificate of   EUR-MED goods in the pan-Euro-Mediterranean area (for the EU).

– A EUR.2 form as part of the agreement with Syria (for the EU).

– A declaration of origin, by an Approved Exporter (AE), established by all exporter on its trade document, if the value of the shipment doesn’t exceed 6,000€ (10,000€ for shipments towards overseas territories), and without limitation of value.

– A certificate of origin, by a Registered Exporter System (REX), established by all exporter on its trade document, if the value of the shipment doesn’t exceed 6,000€ and without limitation of value.

< the origin of merchandise >
If you have any doubt …

If you have doubts about the interpretation of the origin rules, it’s possible to file a request for BOI (Binding Origin Information) with the customs services, in order to have goods’ origin officially validated by customs.

The BOI request is free and it allows to :

– Ensure the accuracy of the “origin” data from the customs declarations.

– Ensure the TEC (Common External Tariff) and the commercial policy measures (tariff quotas, anti-dumping duties,…) applicable to import goods (non-preferential origin).

– Benefit from reduced or zero customs duties (preferential origin).

The list of the European Union agreements and unilateral preferences can be consulted here.
< the origin of merchandise >
Definitions

AE (Approved Exporter) : AE status issues an authorization number by customs authorities. As soon as it holds this authorization, the exporter (manufacturer, trader, SME or large group) can certify itself the origin of its products by reporting, on the invoice or any other commercial document, the provided statement by the “origin protocol” of the trade agreement involved, as well as its AE number. Customs brokers are excluded from the procedure but can process AE status applications for the account of their customers.

REX (Registered Exporter System) : certification system for goods origin. It’s based on the principle of self-certification by economic operators who write certificates of origin for their own goods. In order to have the right of self-certification, operators must first be registered in the system database by the competent customs authorities. The economic operator thus becomes a “registered reporter”.

CHAPTER 3
< introduction >

Customs value

The customs value is the goods value to declare during the passage through customs. With the tariff classification and the goods origin, it’s one of the key elements forcalculating duties and taxes at import..

When export, it also allows to establish statistics about foreign trade for the exporting country.

customs duties and taxes
< customs value >

The import customs value

data product management

When import,the customs value of goods is calculated based on its transaction value..

IThe transaction value is the price actually charged to the buyer, to which we may add or subtract certain costs (insofar as they are objective and quantifiable) :

– Fees   to be added (corresponding to  costs, products and services associated with the manufacturing, the use and the transport of imported goods) are the sales commissions, the cost of contributions, the cost of packaging and containers, the amount of royalties and license fees, the valueany part of the product of any resale, transfer or subsequent use of imported goods directly or indirectly returning to the seller, and the costs of transport, handling and insurance to the point of entry into the customs territory.

– Fees to be deducted from the purchase price (corresponding to the incurred costs after importation, which must not be included in the actual price to pay): purchase commissions, the interests related to a deferred payment, the reproduction rights, duties and taxes associated with importing or selling the goods, he cost related to any work carried out after the importation, and the cost of transporting the goods after their entry into the customs territory.

In the case where the imported goods are not sold (free goods, imported on consignment or rented goods for instance), or if the transaction value is not acceptable or rejected by the customs authorities, we determine the customs value by using one of the secondary calculation method :

The comparative method : based on an existing transaction value (for identical or similar goods, imported from the same country, at the same commercial level and at the same time) and already accepted by customs.

The déductive method : based on the price of the post-import resale from which we deduct any commission or margins, minus the transport, handling and insurance costs after entering the customs territory.

The calculated value method : based on the costs of raw materials, the operations of manufacturing, the profit and the costs of transport.

The last ressort method : based on objective and quantifiable data possessed by the importer. In reality, it means using one of the method above, but in a more flexible way.

< customs value >

The export customs value

When exporting, you must declare the value of goods at the exit point of the exporting country’s territory. This value can be increased by transport costs to the border, but doesn’t include the amount of exit fees and internal taxes.

The export customs value corresponds to the entire price paid by the foreign buyer for the supply of the goods, determined at the exit point of the exporting country’s territory.

In the case of a succession of sales prior the export to the exporting country, the calculation takes into account the value of the sale made between the last owner of the goods and the foreign buyer. If the commissions (intermediary remunerations), the fees and license fees are included in the invoiced price, they must be taken into account in the customs value. However, discounts on the price reduce the invoiced value when they are granted by the exporter to its foreign client.

< custom value>
What about transport costs ?

Regarding the transportation costs :
– If the goods are exported by sea, the customs value corresponds to the FOB value (Free On Board) at the designated port of embarkation.
– If the goods are exported by air, the customs value corresponds to the FCA value (Free Carrier), which designates the value of the goods plus the transport and insurance costs up to the departure airport. Handling and loading costs at the airport, the customs broker fees and the transit commissions are not taken into account.
– If the goods are exported by road, rail or waterway, the customs value corresponds to the transaction value, plus the transport and insurance costs to the exporting country’s border.

The amount of exit duties and interior taxes is excluded from the export customs value, and must be deducted of the value to be declared if it’s included in the invoiced price to the buyer. In the case where the exported goods are not sold (free goods, imported on consignment or rented goods for instance), the customs value is determined using one of the secondary method mentioned above about the import customs value.

It is only after the three constituent elements of the goods (tariff classification, origin and customs value) have been determined that the importer / exporter can proceed with the customs declaration of his goods.


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