Customs aspects to consider in your strategic sourcing

Incorporating customs considerations into your purchasing strategy can have significant benefits.

For any company engaged in international trade, customs is at the heart of its business. As companies evolve, their strategic sourcing requirements change. Events in recent years have also led many companies to review their procurement methods and associated supply chain requirements. Tariffs are a natural part of international trade. If your company is changing its sourcing strategy, incorporating customs packages can be beneficial.

By taking customs into account, you can improve your sales opportunities and become more compliant. What you import, where you import from, how much of the final product is imported, where your manufacturing unit is located, and the level of internal processing are all affected by customs considerations and can impact sourcing strategy.

The question is: how can certain customs considerations impact your strategic sourcing, and how can you make more informed decisions as a result?

Woman signing a free trade agreements

Free trade agreements (FTAs)

Free trade agreements are still underutilised. An FTA facilitates trade between countries by reducing or eliminating tariffs on goods covered by the agreement. Depending on a country’s rules of origin, certain materials or products may not be covered under the FTAs, which could result in higher duties and fees. But if your company can leverage this insight within your sourcing strategy, you can save on costs.

The FTA savings may be enough to justify setting up production facilities in a particular country. The rules of origin can influence what and how you purchase: sometimes even a higher sourcing cost in terms of a price increase can lead to considerably larger savings, all dependent on what the rules of origin state.

A consideration of the entire supply chain is the basis to decide whether you and your customers can use free trade agreements. It depends on the countries from which you purchase and where the goods originate. This means that the decisions you make can have an impact, not only on your cost savings but also on your sales opportunities.

Woman holding a canned food at a grocery store

Country of origin

The country of origin determines whether your product is eligible for preferential tariff rates. For example, if it falls under the correct commodity code for free trade tariff rates. However, it is not just about the country. Another factor is if the product you want to import is composite or not, and if so, where does it come from? What percentage of your goods is composite and what is your level of processing? This will help determine whether your customers can take advantage of available FTAs. Finally, your sourcing options may be affected by the fact that the country of origin is also used to decide whether trade policy measures can restrict trade in the goods in question. Examples of such measures include embargoes, anti-dumping measures and quantitative restrictions.

The compliance risks associated with the use of the wrong country of origin can be severe. If the product you want to import contains parts from different countries, you need to be especially careful. Authorities place a lot of importance on the country of origin because importation is about revenue and permissibility. If you are unsure about the country of origin, you can reduce the risks by asking the customs authorities for a binding decision in advance. In the EU, this is called an ’Advance Ruling of Origin‘ or a ‘Binding Origin Information’ (BOI) decision.

Classification of goods – First-class classification of goods

Woman selecting a tshirt from multiple tshirts

The classification of your goods also helps determine whether you can take advantage of free trade agreements and the duties you pay. For example, a composite product may be subject to import duties, while a product that is imported in parts and self-assembled is not. This does not mean that it is always better to import components, but it does illustrate that sourcing and production-related decisions can affect the duties incurred. Consequently, you should examine how such decisions affect tariff costs and what is required to classify a product to qualify for a free trade agreement. The classification can affect your purchasing decisions.

Classifying goods is not just about tariffs and the potential use of free trade agreements. It also requires additional actions that affect your sourcing strategy.

For example, commodity codes determine whether import or export restrictions apply and whether import or export licenses are required.In addition, classification determines whether the product is subject to excise tax and, in some cases, whether you can take advantage of reduced VAT rates.

Although there is a clear framework, the classification of a product can be a matter of discretion to a certain extent. As with the country of origin, you can apply in advance for a binding classification decision from the relevant customs authorities (BTI: binding tariff information). If this is granted, you have the certainty that the commodity code you want to use for your product is the correct one.

Customs valuation

For each product, customs authorities have a predefined value range: what should the product cost? If you enter a lower customs value than the lower threshold of this range, it will probably cause a reaction from the customs authorities. Consequently, you will be asked to justify the value you have entered. This may result in unforeseen higher duties and higher VAT costs. Failure to comply may result in fines and penalties. To prove a specific customs value, you must be able to show what happened in each link of the chain of monetary events for the product. This includes all transactions, what the product includes, the origin, and processing and manufacturing cost of the product.

To customs authorities, transparency is crucial. You and your suppliers need to provide them access to the information they need to avoid facing the risk of increasing costs. If you know from the beginning that your sourcing, manufacturing and sales activities lead to a low customs value, you should have a method and structure to prepare all monetary transactions associated with the product. You can submit this information with the import declaration or have it on hand in case customs or tax authorities ask for it.

www.maersk.com
www.maersk.com

Related News

Cau Treo Customs - Border Guard forces seize 4 kg of gold illegally transported across border gate

Cau Treo Customs - Border Guard forces seize 4 kg of gold illegally transported across border gate

VCN – Customs – Border Guard forces have arrested four suspects for illegally transport of four kg of gold across Cau Treo International Border Gate.
90,000 liters of DO oil seized by Customs and Coast Guard forces

90,000 liters of DO oil seized by Customs and Coast Guard forces

VCN - VCN - Fleet 3 of the Anti-smuggling and Investigation Department- the General Department of Vietnam, Coast Guard Region 3 Command and the working group of Reconnaissance Group No. 2, Coast Guard Command have seized a ship for illegal transport of 90,000 liters of DO oil.
Quang Ninh: Administrative reform, improving infrastructure, promoting import and export

Quang Ninh: Administrative reform, improving infrastructure, promoting import and export

VCN - Import-export activities through border gates in Quang Ninh province have prospered thanks to the implementation of accompanying solutions to support businesses and the determination and efforts of authorities at all levels.
Chi Ma Customs strictly controls in targeting areas

Chi Ma Customs strictly controls in targeting areas

VCN - In order to closely control smuggling and trade fraud across the area, Chi Ma Border Gate Customs Branch (Lang Son Customs Department) promotes solutions to patrol and control at targeting area.

Latest News

Customs Dept seizes smuggled frozen suckling pig meat worth over RM1 milion

Customs Dept seizes smuggled frozen suckling pig meat worth over RM1 milion

VCN - The Perak Royal Malaysian Customs Department seized 23,121 kilogrammes (kg) of frozen suckling pig meat estimated to be worth RM1,040,472 in a raid in Port Klang on May 9.
FedEx launches new online import customs declaration tool

FedEx launches new online import customs declaration tool

FedEx Express, a subsidiary of FedEx Corp. (NYSE: FDX) and one of the world’s largest express transportation companies, announced the official launch of the FedEx Online Import Customs Declaration Tool in Mainland China.
Iran becomes sixth country to connect its national customs system to eTIR

Iran becomes sixth country to connect its national customs system to eTIR

Iran has become the sixth contracting party to the TIR Convention to connect its national customs system with the eTIR international system, which was developed by UNECE to modernize and facilitate the cross-border transportation of goods in transit. 
6th WCO Global AEO Conference promotes modernization of AEO programmes

6th WCO Global AEO Conference promotes modernization of AEO programmes

VCN - The 6th WCO Global AEO Conference was held in Shenzhen, China from May 8 - 10, with the theme “Harnessing the Power of AEO Programmes for Inclusive and Sustainable Global Trade”. The event attracted over 1,200 attendees from 108 countries and territories, including delegates from Customs administrations, international organizations, academic institutions, representatives from the private sector, non-governmental organizations and Development Banks, 15 sponsors, and 59 booths of enterprises and technology solution providers.

More News

GAC to promote foreign trade, expand global cooperation

GAC to promote foreign trade, expand global cooperation

VCN - China will deepen its cooperation with all parties concerned to promote the role of Authorized Economic Operator (AEO) agreements in facilitating both domestic and global companies' efforts to boost their foreign trade activities, said a customs official.
6th WCO Global AEO Conference opens in Shenzhen, China

6th WCO Global AEO Conference opens in Shenzhen, China

On 8 May 2024, the 6th WCO Global AEO Conference was launched in Shenzhen, China, by the Secretary General of the World Customs Organization (WCO), Mr. Ian Saunders. This event, themed “Harnessing the Power of AEO Programmes for Inclusive and Sustainable Global Trade,” attracted over 1,200 attendees from 108 countries. The opening ceremony was graced by the Vice Minister of the General Administration of China Customs (GACC), Mr. Wang Lingjun, and the Mayor of Shenzhen City, Mr. Qin Weizhong, along with other distinguished guests and delegates.
Customs software upgrade set to bolster trade for developing countries

Customs software upgrade set to bolster trade for developing countries

ASYCUDAWorld, a flagship software backed by UN Trade and Development, introduces cutting-edge capabilities to help improve customs management across more than 100 economies.
Saudi customs receives global acclaim for two-hour clearance service

Saudi customs receives global acclaim for two-hour clearance service

Saudi customs has garnered global acclaim for implementing the two-hour clearance service at all the country’s ports.
Customs create safe environment for all procedures

Customs create safe environment for all procedures

VCN - Customs is keen to create a safe environment for all procedures that contribute to the field of customs work for the general interest and work in particular, said an official.
Hong Kong customs arrests 7 for laundering $1.8 billion

Hong Kong customs arrests 7 for laundering $1.8 billion

VCN - Codenamed “Daybreak”, the operation was linked to a mobile app scam in India and two jewellery companies, the Customs and Excise Department revealed at a press conference on Friday.
The Republic of Nicaragua accedes to the Revised Kyoto Convention as the 136th Contracting Party

The Republic of Nicaragua accedes to the Revised Kyoto Convention as the 136th Contracting Party

On 15 February 2024, His Excellency César Castañeda, Ambassador of the Embassy of Nicaragua to the Kingdom of Belgium and Mission to the European Union, deposited Nicaragua’s Instrument of Accession to the International Convention on the Simplification and Harmonization of Customs Procedures (as amended), commonly known as the Revised Kyoto Convention (RKC), to Ian Saunders, the Secretary General of the World Customs Organization (WCO), who serves as the depositary for the RKC. The ceremony took place at WCO Headquarters in Brussels, Belgium.
Bulgaria Announces Merger of Customs and Revenue Agencies

Bulgaria Announces Merger of Customs and Revenue Agencies

The Bulgarian Ministry of Finance has unveiled plans to consolidate the National Revenue Agency and the Customs Agency into a single entity, marking a significant step towards streamlining financial operations in the country.
Employing AI, ML in Customs and border management

Employing AI, ML in Customs and border management

VCN - The success of the 2023 Technology Conference and Exhibition of the World Customs Organization (WCO) co-hosted by The General Department of Vietnam Customs in Hanoi on 10th – 12th October 2023 has once again affirmed the important role of technology for Customs digital transformation. Customs administrations of many countries around the world have researched and applied technologies in specialized operations, including the artificial intelligence (AI) and machine learning (ML) in customs and border management.
Read More

Your care

Latest Most read
Customs Dept seizes smuggled frozen suckling pig meat worth over RM1 milion

Customs Dept seizes smuggled frozen suckling pig meat worth over RM1 milion

VCN - The Perak Royal Malaysian Customs Department seized 23,121 kilogrammes (kg) of frozen suckling pig meat estimated to be worth RM1,040,472 in a raid in Port Klang on May 9.
FedEx launches new online import customs declaration tool

FedEx launches new online import customs declaration tool

FedEx Express, a subsidiary of FedEx Corp. (NYSE: FDX) and one of the world’s largest express transportation companies, announced the official launch of the FedEx Online Import Customs Declaration Tool in Mainland China.
Iran becomes sixth country to connect its national customs system to eTIR

Iran becomes sixth country to connect its national customs system to eTIR

Iran has become the sixth contracting party to the TIR Convention to connect its national customs system with the eTIR international system, which was developed by UNECE to modernize and facilitate the cross-border transportation of goods in transit. 
6th WCO Global AEO Conference promotes modernization of AEO programmes

6th WCO Global AEO Conference promotes modernization of AEO programmes

VCN - The 6th WCO Global AEO Conference closed successfully, leaving us with deep impressions of the modern and civilized Shenzhen city and a great platform contributing to improving global Customs-Business partnerships.
GAC to promote foreign trade, expand global cooperation

GAC to promote foreign trade, expand global cooperation

VCN - China will deepen its cooperation with all parties concerned to promote the role of Authorized Economic Operator (AEO) agreements in facilitating both domestic and global companies' efforts to boost their foreign trade activities, said a customs off
Mobile Version