Trade compliance guarantees adherence to all trade laws during the import and export of goods. This entails adhering to all the rules pertaining to the goods’ safety and other security standards, also referred to as the Entry Summary Declaration. Based on the types of goods, every country has different sets of rules to follow. Businesses that efficiently comply with the complicated regulatory environment of international trade can guarantee seamless global transactions.
Elements of trade compliance
Trade compliance includes the following crucial elements:
Rules of origin
Rules of origin are generally classified into two categories:
Preferential rules of origin:
Preferential rules of origin pertain to specific trade agreements between countries that determine duty rates. Goods with preferential origin typically benefit from reduced duty rates.
Non-preferential origin:
Non-preferential origin establishes the origin of a product for shipment and is mandatory for all shipments.
Errors in a product’s rules of origin can disrupt your trade compliance and lead to hefty fines.
Tariff classification
The correct tariff classification using a harmonised system code is fundamental for trade compliance. The right HS code ensures accurate duty rates, compliance with the rules, and other customs procedures.
In case of inaccurate classification, the customs authorities may hold your shipment for further investigation. Thus, be mindful while classifying your goods. It is recommended to use an automated tool such as global trade management software to do the job instead of relying on brokers.
Valuation of goods
The customs valuation of goods is another important component of trade compliance. Appropriate valuation keeps undervaluation and overvaluation at bay and guarantees that the right amount of customs duties is paid.
The transaction value of goods is ascertained through a variety of techniques, such as:
- Transaction value
- Computed value
- Deducted value
- Fallback value
Permits and licenses
Importing or exporting specific items might necessitate a license or permit, such as:
- Military goods
- Chemicals
- Medicines
- Animals and plants
- Technology
In case of a missing license, you may encounter fines, shipment delays, or rejection. These permits and licenses can be issued by various government agencies, such as:
- Food and Drug Administration
- Department of Commerce
- Department of Agriculture
Incoterms
A collection of globally accepted guidelines known as incoterms specifies the conditions of sale for international transactions. They make clear what the buyer and seller are responsible for in terms of the following:
- Shipping
- Insurance
- Clearing customs
- Other trade-related matters
Commonly used Incoterms include:
- EXW (Ex-Works)
- FCA (Free Carrier)
- FOB (Free on Board)
- CPT (Carriage Paid To)
- CIP (Carriage and Insurance Paid To)
- CIF (Cost, Insurance, and Freight)
- DAP (Delivered at Place)
Customs management
Smooth trade flows depend on effective customs management. This entails being aware of customs processes, creating correct customs paperwork, and abiding by customs laws.
Export control
Export control laws are intended to stop the export of products or technology that might endanger national security or be used for illicit activities. These rules might prohibit exports to particular nations or mandate licenses for particular goods.
Screening
Screening entails comparing products and people against different databases to identify potential risks, such as:
- Terrorism
- Money laundering
- Proliferation of weapons of mass destruction
The bottom line
Trade compliance is a complicated field that calls for knowledge and close attention. Businesses can reduce risks, stay out of trouble, and guarantee seamless international trade operations by knowing the various components of trade compliance and abiding by the applicable laws and regulations.