customsissuesandprocedure part 12.pptx customsissuesandprocedure part 12.pptx

customsissuesandprocedure part 12.pptx

1. Customs Issues and Procedure

2. Course Material Reference

3. Important Dates ▶ Assignment 9/23/2024 ▶ Midterm 9/26/2024 ▶ Final 10/3/2024 This Photo by Unknown Author is licensed under CC BY-SA-NC

4. Terminal Learning Objectives ▶ Understand the role of customs in international trade. ▶ Identify key customs procedures and documentation required for imports and exports. ▶ Analyze common issues and challenges related to customs compliance. ▶ Explore strategies for ensuring smooth customs operations and avoiding delays or penalties.

5. Overview ▶ Overview of Customs Regulations, Procedures, and Their Impact on Supply Chain Operations Customs regulations are government-imposed rules and standards that regulate the movement of goods across international borders. These regulations aim to ensure the safety, security, and compliance of traded goods, collect revenue (duties and taxes), and enforce national and international laws. Understanding and adhering to customs regulations is a critical aspect of supply chain management because it directly impacts the flow of goods, cost structures, and lead times. This Photo by Unknown Author is licensed under CC BY-ND

6. Overview ▶ Key Components of Customs Regulations Classification and Valuation of Goods Goods are classified using the Harmonized System (HS) Codes , which determine duty rates and taxes. Customs valuation is the process of determining the monetary value of the imported goods for taxation. The value is often based on the transaction value but may also include transportation costs, insurance, and other charges. Documentation Requirements Common documents include Bill of Lading , Commercial Invoice , Packing List , Certificate of Origin , and Import/Export Licenses . Proper documentation is crucial to facilitate the customs clearance process, minimize delays, and avoid penalties. Import and Export Controls Certain goods may be subject to import quotas , embargoes , or special licenses . Regulations can vary significantly by product type, country of origin, and destination. For example, high-tech or dual-use goods might require special permits due to security concerns. Customs Duties, Taxes, and Tariffs These are financial charges imposed on goods. They vary depending on the classification, value, and trade agreements between countries. Tariffs can affect supply chain costs, making it critical for companies to explore tariff mitigation strategies like duty drawbacks or utilizing Free Trade Zones (FTZs). Trade Agreements and Preferences Trade agreements (e.g., NAFTA/USMCA, EU Single Market, RCEP) can reduce or eliminate duties for qualifying goods. Companies need to ensure that they meet rules of origin and other conditions to benefit from these agreements. Customs Security Programs Programs like the Customs-Trade Partnership Against Terrorism (C-TPAT) or Authorized Economic Operator (AEO) establish partnerships between customs authorities and businesses to enhance security and streamline trade. This Photo by Unknown Author is licensed under CC BY-ND

7. Overview ▶ Customs Procedures Customs procedures involve a series of steps to ensure goods are compliant with the regulations of the importing and exporting countries. The key procedures are: Pre-Shipment Procedures Pre-shipment inspections (if applicable). Advance customs declarations and submission of supporting documents. Customs Clearance Process Goods arriving at the port are registered, and documents are reviewed. Goods may undergo physical or documentary inspections to verify compliance. Payment of applicable duties, taxes, and fees. Release of Goods After successful customs clearance, goods are released for delivery to the importer. Post-Entry Procedures Audits and verifications can occur to ensure compliance even after the goods have been cleared. Discrepancies may lead to fines, penalties, or additional duties. This Photo by Unknown Author is licensed under CC BY-ND

8. Overview ▶ Impact of Customs Regulations on Supply Chain Operations Lead Time and Inventory Management Customs procedures, especially if complex or time-consuming, can significantly impact lead times. Delays at customs can cause disruptions in supply chain schedules, forcing companies to hold higher levels of safety stock, which increases carrying costs. Costs and Cash Flow Duties, taxes, and fees contribute to the landed cost of goods. Companies must manage cash flows effectively since duties are often payable upfront, impacting working capital. Supply Chain Design and Sourcing Decisions Customs regulations influence sourcing decisions, especially when trade barriers or tariffs make certain supply chain routes cost-prohibitive. Companies often explore tariff engineering (e.g., reclassifying products under different HS codes) or change their sourcing and manufacturing locations to optimize costs. Risk and Compliance Management Non-compliance can lead to fines, seizure of goods, and loss of business reputation. Maintaining compliance involves significant administrative resources, leading many companies to invest in customs compliance teams or outsource to customs brokers. Use of Trade Zones and Special Economic Areas Companies can leverage Free Trade Zones (FTZs), Bonded Warehouses, and Export Processing Zones (EPZs) to defer or reduce duty payments and streamline operations. This Photo by Unknown Author is licensed under CC BY-ND

9. Overview ▶ Strategies for Managing Customs-Related Challenges Utilizing Technology Implementing automated customs compliance software for real-time tracking, automated document submission, and regulatory updates. Partnering with Experienced Logistics Providers Third-party logistics (3PL) providers and customs brokers can assist in navigating complex customs processes. Participating in Trusted Trader Programs Programs like C-TPAT or AEO can lead to expedited customs processing and fewer inspections. Adapting to Regulatory Changes Regular training, staying updated on regulatory changes, and proactive compliance management help mitigate the risk of non-compliance. This Photo by Unknown Author is licensed under CC BY-ND

10. Overview How Customs Regulations Affect the Efficiency and Cost of a Global Supply Chain Customs regulations play a pivotal role in shaping the efficiency and cost structure of global supply chains. Their effects manifest in several areas, ranging from operational delays and increased compliance costs to strategic decisions regarding sourcing, logistics, and inventory management. This Photo by Unknown Author is licensed under CC BY-ND

11. Overview Impact on Efficiency Lead Times and Shipping Delays Customs inspections and clearance processes can introduce significant delays in the flow of goods. Factors such as lengthy documentation reviews, physical inspections, and customs backlogs can slow down the clearance process, affecting the overall lead time of shipments. Delays caused by customs regulations can disrupt the just-in-time (JIT) supply chain model, which relies on precise timing for inventory replenishment and production scheduling. Complexity in Documentation and Procedures Different countries have varying documentation requirements, which can complicate the shipment process and require additional time and resources to prepare, review, and submit documents. Errors in documentation or misclassification of goods can lead to rejections, rework, or additional inspections, further delaying shipments and reducing supply chain efficiency. Increased Risk of Non-Compliance Non-compliance with customs regulations—whether intentional or due to lack of knowledge—can result in penalties, fines, or even the seizure of goods. This increases uncertainty and risk in the supply chain. To mitigate this risk, companies often implement rigorous compliance processes, which can slow down operations and require substantial administrative effort. Security Programs and Trusted Trader Initiatives Participating in customs security programs like the Customs-Trade Partnership Against Terrorism (C-TPAT) or the Authorized Economic Operator (AEO) can enhance supply chain efficiency by expediting customs clearance, reducing inspections, and providing preferential treatment. However, these programs require initial investments in security measures, documentation, and regular audits, which can be resource-intensive. Coordination and Communication Efficient customs management requires seamless coordination among multiple stakeholders, including suppliers, logistics providers, customs brokers, and regulatory authorities. Breakdowns in communication can lead to delays and inefficiencies, especially in global supply chains where multiple countries and regulations are involved. This Photo by Unknown Author is licensed under CC BY-ND

12. Overview Impact on Cost Customs Duties, Taxes, and Tariffs Customs duties and tariffs add to the landed cost of goods, which directly impacts profitability. Depending on the nature of the goods and the trade agreements in place, these costs can significantly vary. Fluctuations in tariff policies, such as the imposition of trade barriers or retaliatory tariffs, can increase costs unpredictably, leading to higher overall costs or the need to reroute supply chains. Compliance Costs Maintaining compliance with customs regulations involves costs associated with filing declarations, record-keeping, and the use of specialized customs software. The cost of employing or contracting customs compliance experts, or working with customs brokers, also adds to the total cost of goods. Inventory Holding Costs Due to the uncertainty and variability of customs clearance times, companies may need to hold higher levels of safety stock to buffer against delays. This increases inventory holding costs and ties up capital in inventory that could otherwise be used more productively. Costs Associated with Customs Delays and Penalties Delays in customs clearance can result in additional demurrage and detention fees, storage charges, and other incidental costs. Non-compliance penalties, fines, or the cost of re-exporting or destroying non-compliant goods can be substantial, especially for large-volume shipments. Impact on Sourcing and Procurement Customs regulations influence decisions on sourcing and procurement by determining the overall landed cost of goods. Companies may source products from regions with favorable trade agreements or lower tariffs, even if production costs are higher. Strategies like tariff engineering (modifying the product to fall under a different tariff classification) or using Free Trade Zones (FTZs) can help reduce costs, but they add complexity to operations. This Photo by Unknown Author is licensed under CC BY-ND

13. Overview Strategic Considerations and Long-Term Impact Supply Chain Design and Network Optimization Customs regulations may require businesses to rethink their supply chain design. For instance, companies might consolidate shipments to minimize customs clearance costs or utilize bonded warehouses to defer duties until goods are sold. Strategic placement of distribution centers and manufacturing facilities near FTZs or Special Economic Zones can optimize supply chain costs and streamline operations. Sourcing and Production Decisions Shifts in tariff policies or customs regulations can lead to changes in sourcing and production locations. For example, the U.S.-China trade war caused many companies to diversify their supply chains by shifting production to other Asian countries, such as Vietnam or India. Investment in Compliance Infrastructure Companies involved in international trade must invest in compliance systems, software, and trained personnel. These investments, while costly upfront, are necessary to minimize long-term compliance risks and maintain supply chain efficiency. Use of Trade Agreements and Customs Programs Leveraging free trade agreements (FTAs) can reduce or eliminate tariffs, but it requires companies to ensure that goods meet rules of origin and other criteria. This can lead to increased costs for origin verification and compliance audits. Similarly, participating in trusted trader programs can reduce long-term customs-related costs, but the initial investments in security and compliance measures can be high. This Photo by Unknown Author is licensed under CC BY-ND

14. Overview Customs regulations have a profound impact on the efficiency and cost of global supply chains. While they introduce complexities and costs related to compliance, documentation, and duties, they also offer opportunities for companies to optimize their operations through strategic planning, the use of trade agreements, and participation in customs programs. Businesses that successfully navigate customs regulations can gain a competitive advantage by minimizing delays, reducing costs, and ensuring a reliable supply chain flow. This Photo by Unknown Author is licensed under CC BY-ND

15. Key Custom Procedures and Compliance The Harmonized System (HS) is an internationally standardized system used to classify traded products. Developed and maintained by the World Customs Organization (WCO) , it serves as the foundation for tariff classification, statistical data collection, and the regulation of international trade. Understanding the HS is critical for companies involved in importing and exporting, as it directly impacts customs duties, taxes, and compliance. This Photo by Unknown Author is licensed under CC BY-ND

16. Key Custom Procedures and Compliance Structure of the Harmonized System The HS is a hierarchical classification system that organizes products using a coding structure. It is designed to identify all goods traded internationally with a unique number called an HS Code . The system is structured into a series of chapters, headings, and subheadings: Chapters : There are 99 chapters in the HS, each corresponding to a broad category of goods (e.g., Chapter 84: Machinery and Mechanical Appliances). Headings : Within each chapter, there are specific headings that further classify goods (e.g., 84.29: Self-propelled bulldozers). Subheadings : Headings are broken down into subheadings for a more precise description (e.g., 8429.52: Machinery for leveling). The complete HS Code is a six-digit number , structured as follows: First two digits : Identify the chapter. Next two digits : Identify the heading within that chapter. Last two digits : Identify the subheading within that heading. For example, an HS code of 8429.52 translates to Chapter 84 (Machinery), Heading 29 (Bulldozers), and Subheading 52 (Leveling machinery). This Photo by Unknown Author is licensed under CC BY-ND

17. Key Custom Procedures and Compliance Purpose and Functions of the HS The Harmonized System serves several critical functions in international trade: Determining Customs Duties and Taxes HS codes are used by customs authorities worldwide to apply the appropriate tariff rates to imported goods. This ensures consistency and transparency in the application of duties and taxes. Trade Agreements and Preferential Tariffs HS codes are used to determine eligibility for preferential tariff rates under trade agreements. For instance, under the USMCA (formerly NAFTA), specific HS codes may be eligible for duty-free treatment, provided they meet the rules of origin. Data Collection and Statistical Analysis Governments and organizations use HS codes to collect and analyze trade statistics. These statistics help track trade flows, monitor economic performance, and inform trade policy decisions. Compliance and Trade Regulation The HS helps ensure compliance with international trade regulations, including prohibitions and restrictions on certain goods (e.g., dual-use goods, hazardous materials). Facilitation of International Trade By providing a standardized classification system, the HS reduces ambiguity and discrepancies in product classification, thereby facilitating smoother customs procedures and reducing the risk of errors. This Photo by Unknown Author is licensed under CC BY-ND

18. Key Custom Procedures and Compliance Harmonized System and National Tariff Schedules While the HS provides a globally standardized six-digit code, individual countries often expand this classification system with additional digits to create their own national tariff schedules . These national codes include: Harmonized Tariff Schedule (HTS) for the United States. Integrated Tariff of the European Communities (TARIC) for the European Union. Customs Tariff Schedule (HS Code) for Canada. National schedules may add four or more digits to the basic six-digit HS code for a total of 8–10 digits or more, allowing countries to further specify product categories based on their own regulations or economic interests. This Photo by Unknown Author is licensed under CC BY-ND

19. Key Custom Procedures and Compliance Rules for Classifying Goods under the HS The classification of goods under the HS is governed by six General Interpretative Rules (GIRs) : Rule 1: Titles of Sections, Chapters, and Subheadings Classification is based on the legal text of headings, chapter notes, and section notes, rather than just the titles of the chapters or sections. Rule 2: Incomplete, Unfinished, or Unassembled Goods Incomplete or unfinished goods are classified as if they were complete or finished, provided they have the essential character of the finished product. Rule 3: Classification of Mixed or Composite Goods If goods could be classified under two or more headings, preference is given based on the heading that provides the most specific description, the essential character, or the order in which the headings appear. Rule 4: Classification Based on Most Similar Goods Goods that cannot be classified under any heading are classified under the heading for goods that they most closely resemble. Rule 5: Packaging and Containers Special containers or packaging that are intended to be reused and are suitable for long-term use are classified with the goods they accompany. Rule 6: Subheading Classification When classifying under a subheading, the classification is based on the specific subheading descriptions and any additional subheading notes. This Photo by Unknown Author is licensed under CC BY-ND

20. Key Custom Procedures and Compliance Challenges and Best Practices in Using the HS While the HS is a widely adopted system, using it accurately can be challenging due to: Complexity in Product Classification Some goods may fit into multiple categories or require additional interpretation based on technical specifications, making classification a subjective process. Frequent Updates and Changes The HS is updated every five years to reflect changes in technology, trade patterns, and new product innovations. Companies must stay up-to-date with these changes to ensure compliance. Penalties for Misclassification Misclassification can lead to underpayment or overpayment of duties, fines, penalties, or seizure of goods by customs authorities. Therefore, it is crucial for companies to have robust classification procedures and skilled personnel. This Photo by Unknown Author is licensed under CC BY-ND

21. Key Custom Procedures and Compliance Best Practices: Use Customs Brokers and Consultants : Utilize experts for complex classifications or when entering new markets. Automated Systems : Implement classification software that uses artificial intelligence or machine learning to improve accuracy. Training and Education : Regular training for compliance teams to stay informed about HS updates and changes. This Photo by Unknown Author is licensed under CC BY-ND

22. Key Custom Procedures and Compliance The Harmonized System is a critical tool for international trade, enabling standardized product classification, efficient customs processing, and accurate tariff application. Mastering the HS and ensuring correct classification not only reduces compliance risks but also optimizes cost management and supports smoother global supply chain operations. This Photo by Unknown Author is licensed under CC BY-ND

23. Key Custom Procedures and Compliance Customs valuation is the process by which customs authorities determine the monetary value of imported goods. This value is crucial because it serves as the basis for calculating customs duties, taxes, and other charges. Different pricing terms, such as Free on Board (FOB) and Cost, Insurance, and Freight (CIF), play a key role in determining the value of goods for customs purposes. Understanding these terms and their impact on customs valuation is essential for accurate duty calculation and compliance. This Photo by Unknown Author is licensed under CC BY-ND

24. Key Custom Procedures and Compliance What Are FOB and CIF? Free on Board (FOB) FOB is an international shipping term that indicates when the ownership and risk of goods transfer from the seller to the buyer. Under FOB, the seller is responsible for all costs and risks up to the point where the goods are loaded onto the shipping vessel at the port of origin. In an FOB agreement, the buyer is responsible for the transportation costs, insurance, and any risks that occur once the goods are on board the vessel. Customs Valuation Using FOB: When calculating the customs value using the FOB method, only the value of the goods and the costs up to the loading point (e.g., manufacturing cost, packaging, and inland transportation to the port) are considered. This excludes international freight and insurance costs, making the customs value lower than under CIF pricing. Cost, Insurance, and Freight (CIF) CIF is another international shipping term that reflects the total cost of the goods, including shipping and insurance, up to the destination port. Under a CIF agreement, the seller assumes responsibility for the cost of goods, insurance, and freight charges until the goods reach the buyer’s port. The buyer assumes the risks and costs associated with unloading and transportation beyond the destination port. Customs Valuation Using CIF: When calculating customs value under CIF terms, the valuation includes the cost of the goods, insurance, and international freight charges. This results in a higher customs value compared to FOB pricing, as it accounts for additional costs incurred in transporting the goods to the buyer’s port. This Photo by Unknown Author is licensed under CC BY-ND

25. Key Custom Procedures and Compliance Comparison: FOB vs. CIF for Customs Valuation The key difference between FOB and CIF in customs valuation is the inclusion of international freight and insurance costs. Understanding this difference is crucial because it directly affects the dutiable value of imported goods.

26. Key Custom Procedures and Compliance Impact on Customs Valuation and Duty Calculation Customs Value Determination Customs authorities generally seek to use the CIF value for customs valuation, as it represents the full landed cost of the goods, including all costs incurred until the goods arrive at the destination port. In cases where FOB pricing is used, customs authorities will typically add the value of international freight and insurance to determine the customs value, thereby arriving at a value similar to the CIF pricing. Impact on Duties and Taxes Since duties and taxes are calculated as a percentage of the customs value, using the CIF value often results in higher duties compared to FOB, as the CIF value includes additional cost elements. For example, if the duty rate is 10% and the FOB value of goods is $10,000, while the CIF value is $12,000, the duty payable under FOB pricing would be $1,000 (10% of $10,000), whereas under CIF pricing, it would be $1,200 (10% of $12,000). Selection of Pricing Terms for Cost Optimization Importers often choose FOB terms when they want to control freight and insurance costs and have a clearer understanding of the customs valuation basis. Exporters might prefer CIF terms if they can negotiate favorable shipping and insurance rates and include these costs in the sale price, thereby minimizing perceived costs for the buyer. This Photo by Unknown Author is licensed under CC BY-ND

27. Key Custom Procedures and Compliance Customs Regulations and Requirements Customs Valuation Methods Under the WTO Customs Valuation Agreement , the primary basis for customs valuation is the transaction value of the goods, which is the price actually paid or payable for the goods when sold for export, adjusted as necessary. If FOB pricing is declared, customs authorities may require supporting documentation to justify the exclusion of international freight and insurance costs and may request these costs to be added for valuation purposes. Documentation Requirements Importers and exporters must provide clear documentation, such as the Commercial Invoice , Bill of Lading , and Insurance Certificates , to demonstrate the terms of sale and accurately determine the customs value. Any discrepancies between declared values and documentation can lead to delays, reassessments, or penalties. This Photo by Unknown Author is licensed under CC BY-ND

28. Key Custom Procedures and Compliance Implications for Supply Chain and Compliance Strategic Considerations Choosing between FOB and CIF terms can have strategic implications for supply chain management, cost control, and cash flow. For example, using FOB pricing allows the buyer to negotiate their own shipping and insurance rates, potentially reducing overall costs. On the other hand, CIF terms simplify the purchasing process for the buyer, as all costs up to the port of destination are covered by the seller. Compliance and Risk Management Companies must ensure that the declared customs value accurately reflects the agreed-upon pricing terms. Overvaluing or undervaluing goods can lead to compliance issues, potential penalties, and delays in customs clearance. Trade Agreements and Duty Mitigation Importers should also consider how trade agreements and preferential tariff treatments may affect duty rates under different valuation scenarios. For example, the use of FTAs often requires the use of specific customs valuation methods to demonstrate compliance with rules of origin. This Photo by Unknown Author is licensed under CC BY-ND

29. Key Custom Procedures and Compliance FOB and CIF pricing play a crucial role in determining customs value, which in turn affects the calculation of duties, taxes, and overall landed costs. Importers and exporters must carefully select and document their pricing terms to optimize costs and ensure compliance with customs regulations. Understanding the nuances of FOB and CIF helps companies navigate international trade more effectively and achieve better control over their supply chain costs. This Photo by Unknown Author is licensed under CC BY-ND

30. Key Custom Procedures and Compliance Documentation is a fundamental aspect of import/export operations and customs procedures. Each document serves a specific purpose and is required by customs authorities, financial institutions, or other stakeholders to ensure compliance, legal ownership, and the smooth movement of goods across borders. Below is an overview of the most common documents used in international trade: Commercial Invoice Packing List Bill of Lading (B/L) Certificate of Origin (COO) Insurance Certificate This Photo by Unknown Author is licensed under CC BY-ND

31. Key Custom Procedures and Compliance Commercial Invoice Purpose : The Commercial Invoice is the primary document used in international trade. It serves as a record of the sale transaction between the seller (exporter) and the buyer (importer) and is used by customs authorities to determine the value of the goods for the assessment of duties and taxes. Contents : Names and addresses of the buyer and seller Invoice number and date Description of the goods (including HS codes, quantity, weight, and value) Unit price and total price Currency of transaction Payment terms (e.g., cash in advance, open account, letters of credit) Shipping terms (Incoterms) (e.g., FOB, CIF) Country of origin Signature of the exporter or authorized person This Photo by Unknown Author is licensed under CC BY-ND

32. Key Custom Procedures and Compliance Importance : Customs authorities use the commercial invoice to assess the customs value, determine duty and tax rates, and confirm the legality of the transaction. Financial institutions use it to facilitate payments, particularly when the transaction is secured by a letter of credit. Errors or discrepancies in the commercial invoice can lead to customs delays, fines, or additional inspections. Best Practices : Ensure all information is accurate, especially product descriptions, quantities, and values. Use standardized product codes, such as the Harmonized System (HS) codes, for easy identification and classification of goods. This Photo by Unknown Author is licensed under CC BY-ND

33. Key Custom Procedures and Compliance Packing List Purpose : The Packing List provides detailed information on how the goods are packed, including the number of packages, dimensions, weight, and contents of each package. It is used by logistics providers, customs authorities, and the importer to verify the contents of the shipment. Contents : Invoice reference number (to link the packing list to the commercial invoice) Description of goods (as per the commercial invoice) Packaging details (e.g., number of boxes, crates, pallets) Dimensions and weight of each package Marks and numbers on each package for identification Special handling instructions , if applicable This Photo by Unknown Author is licensed under CC BY-ND

34. Key Custom Procedures and Compliance Importance : Customs authorities use the packing list to verify the contents of the shipment and match it with the commercial invoice. Carriers and logistics providers use it to confirm the number of items, check weight and volume, and plan for efficient loading and unloading. Any discrepancies between the packing list and other documents can cause delays and result in additional inspections or rejections. Best Practices : Provide clear, concise, and consistent descriptions of goods that match the commercial invoice. Use standardized units of measurement and include both metric and imperial units where applicable. This Photo by Unknown Author is licensed under CC BY-ND

35. Key Custom Procedures and Compliance Bill of Lading (B/L) Purpose : The Bill of Lading (B/L) is a legal document issued by the carrier (e.g., shipping line, airline, trucking company) to the shipper, acknowledging receipt of goods and serving as a contract of carriage and a document of title. Types of Bills of Lading : Straight Bill of Lading : Non-negotiable; goods are delivered to the named consignee only. Negotiable Bill of Lading (Order B/L) : Can be endorsed and transferred to third parties, serving as a document of title for the goods. Contents : Names and addresses of the shipper and consignee Port of loading and port of discharge Description of goods (including weight, dimensions, and number of packages) Shipping terms and conditions Freight charges (whether prepaid or collect) Vessel and voyage number (for ocean shipments) Signature of the carrier or agent This Photo by Unknown Author is licensed under CC BY-ND

36. Key Custom Procedures and Compliance Importance : The B/L acts as a contract of carriage between the shipper and the carrier, outlining terms and responsibilities. It serves as a receipt of goods from the carrier, confirming that goods have been received in good condition and are ready for shipment. As a document of title , it allows the holder of the B/L to take ownership of the goods. It is often used in financing transactions, where the importer cannot take possession of the goods until payment has been made. Best Practices : Ensure the information on the B/L matches the commercial invoice and packing list. Use the correct Incoterm to define the responsibilities of the shipper and the consignee. This Photo by Unknown Author is licensed under CC BY-ND

37. Key Custom Procedures and Compliance Importance : Customs authorities use the COO to verify eligibility for preferential tariff treatment and ensure compliance with trade agreements. It helps importers and exporters reduce duty costs by proving compliance with the rules of origin for specific agreements. Best Practices : Obtain the COO from an authorized body, such as a Chamber of Commerce, to ensure authenticity. Keep a record of the COO for audit purposes, as customs authorities may request it for verification even after goods have been cleared. This Photo by Unknown Author is licensed under CC BY-ND

38. Key Custom Procedures and Compliance Insurance Certificate Purpose : The Insurance Certificate provides proof that the goods are insured against loss, damage, or other risks during transit. It is often required when shipping under terms like CIF or CIP (Carriage and Insurance Paid to). Contents : Policy number and insurance company Insured party’s name and address Description of goods (as per the commercial invoice) Insured value and currency Coverage details (e.g., "All Risks" or specific exclusions) Effective dates of coverage This Photo by Unknown Author is licensed under CC BY-ND

39. Key Custom Procedures and Compliance Importance : The Insurance Certificate protects the buyer and seller against financial loss in the event of damage or loss during transit. It is essential for customs clearance in some countries, especially when the customs valuation includes insurance costs. Best Practices : Ensure that the insurance coverage matches the agreed terms in the sales contract. Include clear information on exclusions or special conditions that may affect coverage. This Photo by Unknown Author is licensed under CC BY-ND

40. Key Custom Procedures and Compliance Each document in the import/export process serves a unique and vital role in ensuring the legal and compliant movement of goods across borders. Understanding and preparing accurate documentation is essential for minimizing delays, avoiding penalties, and ensuring smooth customs clearance. Traders must ensure consistency across all documents to reduce discrepancies and the risk of customs rejections or delays. This Photo by Unknown Author is licensed under CC BY-ND

41. Key Custom Procedures and Compliance Compliance Requirements: Country-Specific Import/Export Restrictions, Embargoes, and Sanctions In international trade, compliance with import and export regulations is critical to ensure the smooth flow of goods across borders and to avoid legal and financial repercussions. Many countries have specific restrictions, embargoes, and sanctions that govern the movement of goods, technology, and services. These measures are often enforced to achieve economic, political, and security objectives, and non-compliance can result in severe penalties, including fines, imprisonment, or the loss of export privileges. This Photo by Unknown Author is licensed under CC BY-ND

42. Key Custom Procedures and Compliance Country-Specific Import/Export Restrictions Import and export restrictions are rules and regulations imposed by countries to control the entry and exit of certain goods. These restrictions can be motivated by health and safety concerns, environmental protection, cultural preservation, or political considerations. Restricted and Controlled Goods Countries often maintain lists of restricted or controlled goods that require special permits or licenses to import or export. Examples include: Pharmaceuticals and Chemicals : Require special permits to ensure they are not misused or diverted for illegal activities. Dual-Use Goods : Items that can be used for both civilian and military purposes (e.g., advanced electronics, encryption software) often require additional export licenses. Agricultural Products : Many countries impose phytosanitary regulations to prevent the spread of pests or diseases. Textiles and Clothing : Subject to quotas, tariffs, and country-specific labeling requirements. Technical Standards and Certification Requirements Imported goods may need to comply with technical standards or certification requirements. Examples include: CE Marking in the European Union. FCC Compliance for electronics in the United States. CCC Certification for certain products in China. Product Labeling and Marking Countries may require specific labeling and marking requirements for imported goods, including language requirements, country of origin markings, and safety warnings. Licensing and Permits Import and export of certain goods may require obtaining licenses or permits from relevant authorities. For instance: Export licenses for controlled goods from the U.S. Bureau of Industry and Security (BIS) . Import licenses for agricultural products regulated by the U.S. Department of Agriculture (USDA) . Health, Safety, and Environmental Compliance Compliance with health, safety, and environmental regulations is mandatory for certain categories of goods, such as chemicals, food products, and hazardous materials. This Photo by Unknown Author is licensed under CC BY-ND

43. Key Custom Procedures and Compliance Example: U.S. Export Administration Regulations (EAR) The U.S. EAR, enforced by the BIS, controls the export of goods, software, and technology for reasons of national security, foreign policy, and non-proliferation. Companies must check whether their products are listed on the Commerce Control List (CCL) and determine if an export license is required. Example: EU Dual-Use Regulation The EU regulates the export of dual-use items (goods that can be used for both civilian and military applications) to ensure they are not used for military purposes or human rights violations. Exporters must comply with these regulations and apply for licenses if required. This Photo by Unknown Author is licensed under CC BY-ND

44. Key Custom Procedures and Compliance Embargoes Embargoes are government-imposed restrictions that completely or partially prohibit trade or the movement of goods to or from specific countries. They are often used as a tool for foreign policy or to achieve political objectives. Types of Embargoes Comprehensive Embargoes : Complete bans on all forms of trade with a particular country (e.g., North Korea, Syria). Partial Embargoes : Restrictions on specific types of goods, services, or technology (e.g., arms embargo on Myanmar). Sectoral Embargoes : Target specific sectors or industries, such as oil, financial services, or technology. Impact on Trade Embargoes can disrupt existing supply chains, force companies to source from alternative markets, and result in loss of business opportunities. Violating an embargo can lead to severe penalties, including fines, asset seizure, and loss of trading rights. Examples of Embargoes United States Embargo on Cuba : The U.S. restricts trade with Cuba, except for certain humanitarian and informational goods. Businesses must obtain specific licenses to export goods to Cuba. European Union Arms Embargo on Iran : The EU has an embargo on the sale of military equipment and technology to Iran, which is enforced alongside restrictions on financial transactions. This Photo by Unknown Author is licensed under CC BY-ND

45. Key Custom Procedures and Compliance Sanctions Sanctions are restrictions imposed by one or more countries against a targeted country, entity, or individual. Sanctions are used to achieve foreign policy goals, promote human rights, or prevent the spread of weapons of mass destruction. Types of Sanctions Economic Sanctions : Restrictions on financial transactions, trade, or access to markets (e.g., blocking the financial assets of individuals or entities). Trade Sanctions : Prohibitions on the export or import of certain goods (e.g., sanctions on oil exports from Iran). Individual or Entity Sanctions : Restrictions on doing business with specific individuals, companies, or organizations (e.g., the U.S. Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List). Compliance Requirements Companies must conduct due diligence to ensure they do not engage in transactions with sanctioned individuals, entities, or countries. This involves screening business partners, customers, and financial transactions against sanction lists. Financial institutions often have strict compliance programs to identify and block transactions involving sanctioned parties. Penalties for Non-Compliance Non-compliance with sanctions can lead to severe penalties, including fines, criminal charges, loss of export privileges, and reputational damage. Violations can also result in the seizure of goods, revocation of export licenses, and restrictions on future trade activities. This Photo by Unknown Author is licensed under CC BY-ND

46. Key Custom Procedures and Compliance Example: U.S. OFAC Sanctions The U.S. OFAC administers and enforces economic and trade sanctions against targeted countries and individuals. Companies must comply with OFAC regulations and avoid transactions involving individuals or entities on the SDN List. Example: United Nations (UN) Sanctions The UN imposes sanctions to maintain international peace and security. Member states are obligated to implement these sanctions, which may include arms embargoes, travel bans, or asset freezes. This Photo by Unknown Author is licensed under CC BY-ND

47. Key Custom Procedures and Compliance Best Practices for Compliance Know Your Customer (KYC) and Partner Due Diligence Conduct thorough due diligence on all customers, suppliers, and partners to ensure compliance with sanctions and embargoes. Use compliance software to screen business partners against global watchlists (e.g., OFAC SDN List, EU Sanctions List, UN Sanctions List). Implement a Compliance Program Develop an internal compliance program that includes regular training, risk assessments, and internal audits to ensure compliance with country-specific import/export regulations. Establish clear processes for obtaining licenses and permits, record-keeping, and reporting any potential violations. Use Automated Tools for Screening and Classification Utilize automated tools and software to screen transactions, products, and parties against relevant sanction and embargo lists. Implement product classification tools to ensure accurate export classification and licensing determinations. Stay Updated on Regulatory Changes Sanctions, embargoes, and trade regulations are subject to change based on political developments and international relations. Staying informed about regulatory changes is crucial for ongoing compliance. Consult with Experts Engage legal and compliance experts to navigate complex regulations, especially when dealing with high-risk countries, controlled goods, or sanctioned entities. This Photo by Unknown Author is licensed under CC BY-ND

48. Key Custom Procedures and Compliance Compliance with country-specific import/export restrictions, embargoes, and sanctions is essential for any business involved in international trade. Violating these regulations can lead to significant financial penalties, legal consequences, and damage to business reputation. Implementing a robust compliance program, conducting due diligence, and staying informed of regulatory changes are critical steps to ensuring compliance and mitigating risks in global supply chain operations. This Photo by Unknown Author is licensed under CC BY-ND

49. Key Custom Procedures and Compliance Potential Penalties for Non-Compliance and Their Impact on Operations Non-compliance with import/export regulations, trade restrictions, embargoes, and sanctions can have severe legal, financial, and operational consequences. These penalties not only impact the immediate transaction but can also disrupt long-term business operations, affect market access, and damage a company’s reputation. Below is an overview of the potential penalties for non-compliance and their broader impact on business operations: This Photo by Unknown Author is licensed under CC BY-ND

50. Key Custom Procedures and Compliance Potential Penalties for Non-Compliance Fines and Monetary Penalties Monetary penalties are one of the most common consequences of non-compliance and can be substantial. The amount of the fine varies depending on the severity of the violation, the value of the goods involved, and whether the violation was intentional or accidental. Examples: The U.S. Bureau of Industry and Security (BIS) can impose fines of up to $1,000,000 per violation for intentional breaches of export controls. The U.S. Office of Foreign Assets Control (OFAC) can levy civil penalties of up to $311,562 per violation or twice the value of the transaction, whichever is greater. Seizure of Goods Customs authorities may seize or detain goods that are not compliant with import/export regulations. Seizure can occur due to reasons such as misclassification, undervaluation, lack of proper documentation, or violations of restrictions and sanctions. Seized goods may be held indefinitely, forfeited to the government, or even destroyed, resulting in the total loss of the shipment and potential disruption to the supply chain. Revocation of Export/Import Privileges Government authorities may suspend or revoke a company’s export or import licenses, preventing the firm from conducting international trade activities. This can be devastating, especially for companies that rely heavily on cross-border sales or procurement. Revocation of export privileges may apply to specific product lines, all goods from a particular facility, or even all export activities of a company. This Photo by Unknown Author is licensed under CC BY-ND

51. Key Custom Procedures and Compliance Potential Penalties for Non-Compliance Criminal Charges Severe violations, such as exporting controlled goods to embargoed countries or sanctioned entities, can result in criminal charges against the company and its executives. Penalties can include imprisonment for individuals found guilty of willful violations. For example, under the International Traffic in Arms Regulations (ITAR) , individuals found guilty of violating export controls can face up to 20 years in prison. Civil Penalties and Lawsuits Civil penalties can include restitution, the cost of investigation, and legal fees. Additionally, companies may face lawsuits from affected parties, including competitors, partners, or customers, if non-compliance results in business disruptions or damages. Debarment from Government Contracts Companies that violate trade regulations may be barred from participating in government contracts or receiving federal funding. This can be particularly damaging for defense contractors, technology firms, or companies that supply goods or services to government agencies. Reputational Damage Even when no criminal charges are involved, non-compliance can severely damage a company’s reputation, leading to loss of customers, market share, and the inability to attract business partners or investors. This Photo by Unknown Author is licensed under CC BY-ND

52. Key Custom Procedures and Compliance Impact of Non-Compliance on Business Operations Supply Chain Disruptions Seizure of goods or delays due to investigations can disrupt supply chain continuity, leading to stockouts, production delays, or missed delivery deadlines. Supply chain disruptions can force companies to find alternative suppliers or logistics routes, increasing lead times and costs. Increased Compliance and Operational Costs After a compliance violation, companies may need to invest significantly in compliance measures, such as implementing new compliance programs, hiring compliance officers, and enhancing internal audits. The costs of corrective actions, legal counsel, and regulatory filings can strain financial resources, especially for small and medium-sized enterprises. Loss of Market Access Non-compliance can result in the loss of access to key markets due to revocation of licenses or being placed on denied party lists. This can lead to a decline in sales and revenue, particularly for companies that rely on exports or imports for their business. Companies may also lose eligibility for preferential tariff treatments under free trade agreements if they fail to comply with rules of origin or other regulatory requirements. Operational Inefficiencies Non-compliance can necessitate significant changes to operational processes, such as rerouting shipments, switching suppliers, or modifying product components to meet regulatory standards. This can lead to increased lead times, higher costs, and inefficiencies in production and logistics. This Photo by Unknown Author is licensed under CC BY-ND

53. Key Custom Procedures and Compliance Impact of Non-Compliance on Business Operations Impact on Strategic Relationships Non-compliance can damage relationships with key stakeholders, including suppliers, customers, logistics providers, and financial institutions. For example: Banks and financial institutions may refuse to process transactions involving companies with a history of non-compliance due to the risk of violating sanctions or anti-money laundering laws. Suppliers and customers may seek alternative partners if they perceive a high risk of business disruption due to compliance issues. Long-Term Financial Impact Fines, penalties, and legal fees can have a significant impact on a company’s financial health, reducing profitability and cash flow. In some cases, companies may have to write off the value of seized goods or pay compensation to customers for undelivered products, affecting overall financial stability. Increased Scrutiny and Monitoring Once a company is found non-compliant, it may be subject to increased scrutiny by customs authorities and regulators. This can lead to more frequent audits, inspections, and monitoring of shipments, which can slow down operations and increase compliance costs. Insurance and Financial Risks Non-compliance can lead to higher insurance premiums or even loss of coverage if an insurance provider deems the company’s activities too risky. The company’s credit rating may also be affected, impacting its ability to secure loans or attract investment. This Photo by Unknown Author is licensed under CC BY-ND

54. Key Custom Procedures and Compliance Examples of High-Profile Non-Compliance Cases ZTE Corporation (2018) Chinese telecommunications company ZTE was fined $1.4 billion by the U.S. Department of Commerce for violating U.S. export controls by shipping goods containing U.S. components to Iran and North Korea. The penalty included a suspension of ZTE’s export privileges, which effectively shut down its operations, as it was unable to procure critical U.S.-made components. Siemens (2008) Siemens was fined $1.6 billion for violations of the Foreign Corrupt Practices Act (FCPA) and anti-corruption laws in multiple countries. The scandal led to significant reputational damage, loss of business, and the need for extensive corporate restructuring and compliance improvements. Ericsson (2019) Swedish telecommunications company Ericsson agreed to pay over $1 billion to resolve allegations that it violated the FCPA by engaging in a scheme to bribe government officials in multiple countries. The settlement included a requirement to implement enhanced compliance measures and submit to monitoring by U.S. authorities for several years. This Photo by Unknown Author is licensed under CC BY-ND

55. Key Custom Procedures and Compliance Best Practices for Avoiding Non-Compliance Establish a Robust Compliance Program Develop a comprehensive compliance program that includes policies, procedures, and controls to ensure adherence to import/export regulations, sanctions, and trade restrictions. Appoint a compliance officer or team responsible for overseeing and enforcing compliance measures. Regular Training and Awareness Conduct regular training sessions for employees to educate them on compliance requirements, potential risks, and best practices. Include specific training for departments most involved in compliance, such as sales, logistics, finance, and legal. Implement Automated Screening and Classification Tools Use automated tools to screen customers, suppliers, and transactions against global watchlists and denied party lists (e.g., OFAC’s SDN List). Implement product classification tools to ensure correct classification and licensing determinations. This Photo by Unknown Author is licensed under CC BY-ND

56. Key Custom Procedures and Compliance Best Practices for Avoiding Non-Compliance Regular Internal Audits and Compliance Reviews Conduct regular internal audits to identify potential compliance gaps and take corrective actions before violations occur. Review compliance policies and procedures annually to keep up with changes in regulations. Engage External Experts and Consultants Consult with legal and compliance experts to navigate complex regulations, especially when dealing with high-risk countries, controlled goods, or sanctioned entities. Seek advice on developing strategies to mitigate compliance risks, such as structuring transactions to avoid unnecessary exposure. Establish Clear Record-Keeping and Documentation Practices Maintain detailed records of all import/export transactions, licenses, permits, and communications with regulatory authorities. Ensure that all documentation is complete, accurate, and readily accessible for audits and compliance checks. This Photo by Unknown Author is licensed under CC BY-ND

57. Key Custom Procedures and Compliance Non-compliance with import/export regulations and trade restrictions can lead to severe penalties, ranging from fines and seizure of goods to criminal charges and loss of market access. The impact of non-compliance extends beyond financial losses to include operational disruptions, damage to strategic relationships, and long-term reputational harm. By implementing robust compliance programs, conducting regular audits, and staying informed about regulatory changes, companies can mitigate these risks and ensure smooth global trade operations. This Photo by Unknown Author is licensed under CC BY-ND

58. Key Custom Procedures and Compliance Case Study: Compliance Issue Due to Incorrect HS Classification – Ford Motor Company (2019) Background: In 2019, Ford Motor Company faced a significant compliance issue when U.S. Customs and Border Protection (CBP) determined that the company had incorrectly classified imported automotive parts under the Harmonized System (HS) code. Ford imported automotive repair parts, such as parts for transit vans, using HS codes that CBP later deemed inapplicable for the items, resulting in the underpayment of customs duties over a period of several years. This Photo by Unknown Author is licensed under CC BY-ND

59. Key Custom Procedures and Compliance Details of the Compliance Issue Incorrect HS Classification: Ford imported repair and replacement parts for its vehicles and classified these parts under HS codes that attracted lower tariffs. The classification used by Ford did not reflect the correct descriptions under the Harmonized Tariff Schedule of the United States (HTSUS), leading to underpayment of customs duties. CBP Audit and Investigation: U.S. Customs and Border Protection conducted an audit and determined that the parts should have been classified under a different HS code that imposed a higher duty rate. The misclassification spanned multiple years and involved a large volume of imports, resulting in a substantial duty shortfall. Financial Consequences: Ford was assessed a $181 million penalty for underpaid duties. The penalty included back duties owed, interest, and additional fines for the incorrect classification. The penalty amount represented not only the lost revenue for CBP but also punitive damages for non-compliance with customs regulations. The financial impact extended beyond the penalty itself, as Ford had to allocate additional resources for compliance review, legal consultation, and administrative processes to rectify the misclassification. Reputational Consequences: The incident received widespread media attention, highlighting Ford’s failure to comply with U.S. customs regulations. The compliance issue raised concerns about the company’s internal controls and compliance procedures, potentially affecting Ford’s relationships with regulators and trade partners. Reputational damage from the incident could have long-term effects on Ford’s brand image, especially as the automotive industry is highly scrutinized for compliance with trade and environmental regulations. Operational and Strategic Consequences: Ford was required to implement corrective measures, including reviewing and updating its HS classification processes, retraining its import/export compliance teams, and enhancing its internal audit mechanisms. The company’s supply chain and logistics operations were temporarily disrupted as it worked to reconcile past imports and ensure that all future shipments were correctly classified. This Photo by Unknown Author is licensed under CC BY-ND

60. Key Custom Procedures and Compliance Key Lessons and Takeaways Importance of Accurate HS Classification: HS classification is a complex but critical aspect of import/export compliance. Misclassification can result in significant financial penalties and operational disruptions. Companies must ensure that all personnel involved in product classification are well-trained and that classification decisions are supported by a thorough understanding of customs regulations. Need for Regular Compliance Audits: Conducting regular internal audits can help identify potential issues before they escalate into costly compliance violations. Automated classification tools and consulting services can help mitigate risks, especially when dealing with large volumes of imports/exports or complex product categories. Collaboration with Customs Authorities: Establishing good communication and collaboration with customs authorities can help companies address potential issues proactively and avoid punitive measures. When disputes arise, utilizing customs rulings and advance tariff classifications can provide clarity and ensure that the correct HS codes are applied. Financial and Reputational Impact: Non-compliance not only results in financial penalties but also exposes the company to reputational damage, which can affect customer trust, business partnerships, and investor confidence. The aftermath of a compliance violation may require significant investments in compliance programs and damage control measures to restore the company’s reputation. This Photo by Unknown Author is licensed under CC BY-ND

61. Key Custom Procedures and Compliance The case of Ford Motor Company highlights the critical importance of accurate HS classification in international trade. The financial penalty of $181 million and the subsequent reputational fallout underscore the need for robust compliance programs, regular audits, and proactive engagement with customs authorities. Companies engaged in global trade must prioritize compliance to avoid similar costly and damaging outcomes. This Photo by Unknown Author is licensed under CC BY-ND

62. Global trade and climate protection Eighty per cent of all goods come to us by sea. But this form of transportation’s carbon footprint is woefully bad. Ships are responsible for almost three per cent of global CO2 emissions. Shipping companies know their boats need a serious green boost. Without ships, there’s no global trade. New legal requirements and environmentally aware clients are putting increasing pressure on shipping companies to provide CO2-neutral transport. If these companies want to continue to play a key role, they must act. In response to this situation, a few pioneers are taking the first difficult steps. They want to switch their ships to climate-neutral fuels. It’s a bold step. Whereas an energy transition has long been underway in other transport sectors, up to now little attention has been paid to climate protection in international shipping. But now, the industry is under pressure. Legal requirements have either been passed or are about to be passed on both national and international levels. The film accompanies shipowners, engineers and researchers as they navigate an energy revolution on the water. The sector needs to be reorganized in such a way that the climate and the environment are protected - while ensuring that international maritime transport remains profitable. Can this change succeed in time? This Photo by Unknown Author is licensed under CC BY-ND

63. Global trade and climate protection