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The impact of customs issues on any business that is involved
in the international movement of tangible
goods across borders can be considerable.
Customs issues can have implications
on:
- Whether goods can be traded;
- The nature, content, specification, source, origin, cost, selling price, and marketing of goods;
- The terms on which they are sold and purchased;
- The location of manufacturing operations;
- The design of physical distribution facilities and systems; and
- The international structure of companies.
The fundamental
principles of customs planning are,
therefore, to identify all potential commercial transactions
that may have customs implications
and then to arrange those transactions in such a way as to obtain
the optimum
treatment under customs and international
trade regulations and
practice. It is vital that customs
issues are covered in any proposed
international trade transaction at
the outset. Otherwise, it may be too
late to incorporate them once goods have been purchased. It could even be too late
once they have been manufactured.
Detailed below is a (non-exhaustive)
checklist of what we would expect to
see from a best of breed organisation in relation to the management
of the customs function,
covering both compliance and planning.
- Administration
of the customs function. A designated
unit is clearly responsible for
establishing, operating and maintaining
processes and controls for ensuring compliance
with all customs laws and regulations
impacting the import and export
of goods. It should be intranet
enabled and have active communication links
with Finance, Purchasing, Legal
Staff, Internal Controls, Audit
Services, Senior Management and Business
Planning. It should have documented
processes for identifying and
communicating changes in laws,
regulations or company operations that have, or may have
a customs impact to all affected
departments.
- Proactive
consultation. Consultation with the designated
business unit is embedded in all
major sales and procurement processes, in order that
it can consider the impact that
duties and customs compliance costs will have on the proposed
transaction.
- Formally documented
procedures. Formal procedures for complying
with customs-related activities are
extranet enabled. These
set forth instructions for all relevant
parties, such as forwarders, carriers, brokers, banks, etc.These procedures are
simple and easy
to follow; they are integrated into
the company’s systems
and other business processes; and
are periodically reviewed and updated.
These procedures are backed up
by training for the purchasing
staff and for other members of
the company, as appropriate.
- Suppliers. Well before any shipments
are made, best of breed companies
ensure that their suppliers are capable
of providing electronic invoices with
standardisedinformation. These
standards include all details required by Customs, and provide an understandable
description of the products sold,
with separate identification of non-dutiable elements of value. They also ensure
that issues, such
as product labelling, marking and
certification regarding compliance with local safety standards, etc., are properly
addressed before
the goods are shipped. Best of breed companies measure
the success of their procurement
departments against net margin
achieved, rather than gross margin which includes
hidden costs.
- Record keeping Procedures. Records are maintained
(within statutory timescales)
to support all activity relating to the import
of goods. The records retained
normally will include customs, shipping,
purchase, cost, value and origin
documentation for all imported goods.
- Internal audit. A
process is in place to ensure a risk-assessed
proportion of customs entries made
on behalf of the company by its agents, are audited on a periodic basis to establish
and ensure:
(a) goods have been entered to the correct HS classification
code; (b) the customs value of the goods has been calculated
and entered properly; (c) the origin of the goods has
been properly declared; (d) the amount of any duties have
been calculated and reported properly
to the Customs Authorities; (e) all
supporting documents are provided.
Periodic meetings are held with
the agents for the purpose of discussing
performance levels and
targets and opportunities to reduce
costs.
- Tariff classification. Best of breed companies have
a dedicated centre of classification
expertise, regionally as appropriate, to check the tariff
classification carefully before
deciding upon the specification of the goods to be
imported and also the condition
in which to import them. They maintain a
regularly updated global
classification database on the
material master.
- Origin and preferences. A best of breed
business constantly assesses the scope
for sourcing goods from countries
that receive tariff preferences. Prior to an order
they would ensure that the goods
will satisfy the origin rules
and the necessary documentation
will be available. They will determine,
in advance, whether they
will be subject to any restrictions
or quotas.
- Customs valuation. A best of breed business
(using both indirect and direct
tax specialists)
strips out non-dutiable costs from a prospective
transaction to assess the effects
before making the purchasing decision, since the price
for the goods often includes
payment for items that should not attract duty.
Examples of costs that can be unbundled include: buying
commissions; warranties; post-importation
expenses, such as erection and
assembly; research and development expenditures, interest
payments and
advertising
costs, etc.
- Duty Relief’s. Duty Relief’s, such
as Inward Processing Relief; Outward
Processing
Relief; End Use Relief, etc. are embedded and
automated within commercial processes
wherever practicable and
efficient to do so.
- Customs warehousing. The use of customs
procedures, such as customs warehousing
(and Free Trade Zones) are systems based and fully automated.
In particular, Type E “virtual” warehousing
(and pan-EU Type E customs warehousing,
for the most advanced best of breed
companies).
- Simplified procedures. Best of breed companies
experience very few delays due
to Customs at the
ports; and no extra inventory is held in
anticipation of such delays. They
are always looking to utilise cross-frontier customs authorisations
which are valid in more than
one
EU Member State. They also maximise,
wherever possible, the use of simplified entry procedures;
and local clearance authorisations.
All of which is underpinned by
robust accounting system and internal
controls.
- Terms of Trade. Terms of Trade, often
referred to as Incoterms 2000, define a broad
range of cost and shipping obligations,
including the manner in which a product is packed,
inland transportation costs
on the seller’s side, export clearance, international
transport costs, insurance, and
inland transport costs on the buyer’s
side, etc. These obligations and costs need to be built
into any international transaction.
There are 13 Incoterms to choose
from and each has a different effect
on price and delivery. Selection
of the correct Incoterms has a
huge impact on the risk and profitability of international
trade. In
fact, it’s virtually
impossible to make an international
sale until one's been chosen. Best
of breed companies are familiar
with all Incoterms 2000, particularly
the multi-modal ones. They rarely use FOB.
- Statistics. At any given time, best
of breed businesses know precisely
how much duty they have paid and how
much they have saved.
- Cutting
edge planning. The designated business unit is
constantly striving to reduce the
effective rate of duty, by implementation of duty reduction
schemes.
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