Customs 101

When goods move internationally they cross special borders - customs borders. Customs is meant to regulate cross-border trade, promote fair competition, and combat economic crime. For logistics, customs can become a major challenge with regulations and clearance getting complex. 

Defining Customs

Customs is a charge on goods, capital, or services when they cross a customs border. Most customs duties are import duties, meaning the duty is due when the goods are imported. In English-speaking countries, “customs” refers to both the duty (tariff) itself and the competent authority. The customs authority is responsible for customs clearance. 

The amount of duty is determined by the state or association of states that the goods are being imported into. For example, goods imported from outside the EU are generally subject to customs. The General Agreement on Tariffs and Trade (GATT) and guidelines of the World Trade Organization (WTO) provide the framework for national customs regulations. The World Customs Organization (WCO) standardizes international custom regulations. In particular, the Harmonized System of the WCO has been established to ensure a standardized numerical method for classifying traded goods.

Customs Borders vs. National Borders

Customs borders are often identical to national borders, but they don’t have to be. For instance, in the EU, there is an exemption from duty between member countries. This means that only the external borders of the EU are customs borders. There are other free trade agreements, such as the North America Free Trade Agreement (NAFTA), stipulating that no duties are enforced at the borders within that zone. 

Main Types of Customs Duties 

Tariffs serve a number of purposes, from increasing the treasury to protecting an economic area to imposing economic sanctions. Regardless of the objective behind the tariffs, there are tow basic types of customs duties:

• Ad Valorem Duty - This is based on the customs value of a good, which depends on the rate of duty. Rates of duty can be short-lived and are set by the relevant customs authority. 
• Specific or Weight Duty - This is determined by the number, quantity, or nature of the imported goods. 

Most customs duties are usually either ad valorem duties or weight duties. The other types of duties are distinguished according to the purpose pursued by the respective duty.

• Duties of a Fiscal Nature - This is the original type of customs duty. These duties are levied to generate revenue. 
• Safeguard or Protective Duty - As it sounds, these are intended to protect domestic products from cheaper imported goods. A protective tariff makes foreign goods more expensive and domestic goods relatively cheaper. 
• Educational Tariff - A special form of protective tariff designed to enable domestic companies to adapt their products to world market standards during a transitional phase. The general idea is that technologically underdeveloped countries won’t be able to establish their own high-quality production if they are exposed to unrestricted free trade. 
• Anti-dumping Duty - In foreign trade, dumping is the export of a product below its domestic price. An anti-dumping duty is a protective measure against subsidized, artificially cheap imported goods. 
• Retaliatory Tariff - A response to previous import restrictions imposed by another country. 
• Optimal Tariff - This tariff makes imported goods more expensive, reduces import demand, and lowers the world market price of imported goods. The purpose is to improve the ratio between export and import goods in favor of the domestic market. This improves the terms of trade of the importing country, which are an important economic indicator. 
• Export Duty - Export duties are the opposite of all of the above duties: a duty that is levied on goods that are exported versus on goods that are imported. The purpose is to secure goods that are in high demand in the domestic market. For example, if apples are produced in America but could be sold internationally at a much higher price than nationally, but apples are of high economic importance, these tariffs would be imposed. Export duties make exports less attractive, but rarely occur because countries normally benefit from exporting goods. 
• Transit Duty - Hypothetically, transit duties could be levied when goods are transported through a country without it being the final destination. Transit duties are inadmissible under the GATT, so they don’t play a role in modern economic life. 

Purpose of Customs Authorities 

Customs authorities perform sovereign tasks that go beyond just levying the tariffs. Since duties also include taxes, customs authorities also collect excise taxes that are due when goods are imported. 

Customs duties contribute significantly to the state budget in most countries. In addition to this important fiscal task, the customs authorities have other important responsibilities. Controls by the custom authority are intended to ensure fair competition and tax justice, as well as to protect consumers and the domestic market from product piracy. They also combat criminal activities such as smuggling, money laundering, and illegal employment. 

3PL Provider Interaction with Customs 

As beneficial as the basic concept of customs may be, the tasks involved in actual customs clearance can be complex. It can be a challenge to stay up to date and avoid problems with customs clearance. This is where a 3PL or logistics provider can step in to help. A 3PL can assist with customs clearance in the following ways:

• Handling Documentation - Preparing and submitting import and export paperwork, and ensuring all documents comply with relevant regulations. 
• Ensuring Compliance - Ensure all shipments adhere to customs laws and regulations to minimize the risk of delays, fines, or seizures. 
• Facilitating Customs Procedures - Many 3PLs will coordinate with customs authorities on your behalf. They handle communication, facilitate inspections when needed, and help expedite the clearance process. 
• Offering Expertise - 3PLs are typically well-versed in international trade regulations. Their knowledge of tariffs, duties, and trade agreements helps ensure accurate classification and valuation of goods.
• Providing Additional Services - Some will offer additional services such as duty drawback programs, consulting, and compliance audits to help with the customs clearance process. 

While there can be benefits to a 3PL assisting with customs clearance, it's vital to define responsibilities and know there are limitations to what they can handle. For example, in some cases it may be wise to hire special legal counsel or work with the government directly to navigate customs clearance effectively. 

Need help understanding customs clearance for your business? Reach out to Brandfox today and learn about how we can help with customs clearance and all of your logistics needs.