Trade compliance: global trade management terms

 

Trade compliance

Trade compliance

Rules of origin

Used to determine the country of origin of a product for purposes of international trade. There are two common types of rules of origin depending upon application, the preferential and non-preferential rules of origin. Tariff and duty fees are impacted by rules of origin classification.

 Incoterms

A set of pre-defined commercial terms published by the International Chamber of Commerce that are used ininternational commercial transactions or procurement processes. These rules, such as “free on board” and “delivery duty paid”, are intended to communicate the costs, tasks and risks associated with the transport and delivery of goods.

 Foreign trade zones

Secure areas legally outside the customs territory of the United States. Their purpose is to attract and promoteinternational trade and commerce. Foreign exporters planning to open or expand new American outlets may forward their goods to a foreign trade zone in the US to be held for an unlimited period while awaiting a favourable market in the US or nearby countries. During this time, goods will not be subject to CBP entry requirements, payment of duty, tax or bond.

Tariff engineering

Modifying the design of an imported product to reduce duty or tariff expense associated with that product.

 Bonded logistics parks

A type of special economic zone; trade arrangements are similar to those of a bonded warehouse but over a specific geographic area. Goods may be stored, manipulated or undergo manufacturing operations without payment of duty.

 Duty drawback

The refund of certain duties, internal revenue taxes and certain fees collected upon the importation of goods. Such refunds are only allowed upon the exportation or destruction of goods under US Customs and Border Protection supervision.

Customs handbook

The practice of documenting all the imported parts/materials used in final assembly in order to be able to claim duty drawback when a completed system is re-exported. For instance, if a company did not use all imported parts/materials in final assembly, the finished goods handbook allows for a refund on any duties paid on those unused materials.

Harmonised system

The Harmonised Commodity Description and Coding System, also known as the Harmonised System (HS) of tariff nomenclature, is an internationally standardised system of names and numbers to classify traded products. These codes determine tariff assignment and eligibility for preferential trade programmes.

 Tariff classification

Numbered category in a country’s customs tariff schedule to which goods being imported or exported are determined to belong for the purpose of (1) imposing duties and taxes, and (2) recording into the country’s international trade statistics. Most countries classify goods in accordance with the harmonised commodity description and coding system, popularly known as the harmonised system (see above).

Regional value content

RVC rules require that a product include a certain percentage of originating content in order to qualify for certain free-trade agreements.

Transfer pricing

The price at which divisions of a company transact with each other. Transactions may include the trade of supplies or labour between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities. Firms will often raise or lower the transfer price of goods or materials to ensure an optimal income tax position. This typically can be in conflict with the customs valuation on imported goods and materials.

Customs valuation

A customs procedure applied to determine the customs value of imported goods. If the rate of duty is ad valorem, the customs value is essential to determine the duty to be paid on an imported good.

Customs assist

Goods or services provided by a buyer that lend tangible value to the production of the final product by the manufacturer. For example, raw materials are considered assists if the buyer sends them to the manufacturer to be processed or used in the product that will ultimately be imported into the US. Failing to account for customs assists that the importer has contributed to the manufacture of their products can mean reporting a lower valuation and therefore underpaying customs duties.

 

 

Source: SCM World, october 2015