Customs 101

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KRISTINA CARTER: Let's start with the basics of what customs is. By definition, customs is an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animals, transport, personal and hazardous items into and out of a country.

There are three main objectives of customs agencies or government authorities.

First, to collect revenue through taxes.

Second, to protect consumers and businesses. And third, to make sure there is adherence to international agreements.

The first objective, collecting revenue through taxes and tariffs refers to all indirect taxes, both discriminatory, duty and anti-dumping, as well as non-discriminatory--

value added taxes, VAT, goods and services taxes, GST, excise tax, green taxes, and more.

The second objective of customs is to protect consumers from dangerous products, as well as protecting domestic manufacturers from unfair competition from abroad. And the third objective of customs is to ensure that traders adhere to global and local country agreements on sanctions, nuclear proliferation, and import and export prohibitions, such as arms, drugs, and more.

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KRISTINA CARTER: Differences and similarities between customs authorities around the globe. Customs authorities usually reside under a government's department of finance, although there are exceptions, such as in the US, where customs resides under the Department of Homeland Security.

So in that exception, the US Customs and Border Protection, CBP, is responsible for both passport control, as well as goods imported and exported. In most of the EU, passport control is a task of the national police force of each country, and their customs authorities focus on goods imported and exported. Some other countries like Nigeria and Singapore have more of a paramilitary customs force.

Having pointed out some of the differences, there are also overwhelming similarities between customs agencies worldwide. For example, national customs regulations are governed by a few international bodies and agreements within the World Trade Organization, also known as the WTO, and the World Customs Organization, the WCO, which both consist of 190 plus countries.

These two organizations have created a globally accepted framework around three main data elements used by all customs agencies worldwide to identify goods and enable proper taxation. The harmonized six-digit commodity codes, which can be further adapted and subdivided, sometimes to 8, 10, or even more digits by member countries for their own purposes.

Country of origin rules, which determine the economic nationality of products in trade, and allow specific taxation, but also are the basis for enabling free trade agreements, known as FTAs. And a common definition of customs value, how value is set on goods, rules on types of transactions for these goods crossing borders to enable the fair assessment of duties and taxes.

For example, you will find the same rules on customs valuation in the US Code of Federal Regulations, known as CFR, and in the EU's Union Customs Code, the UCC. Thus, for example, the tariff schedules of the US, the EU, Japan, and the East African Community are all based on the same WCO harmonized code.

A common question is whether this means different countries have either the exact same tariff codes or identical duty rates. And the answer to both questions is no. All countries are free within the structure of the WCO harmonized system to diversify their tariff structures into more detail, and apply duty rates as required by their own economic, industrial, and trade motives.

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KRISTINA CARTER: What is customs brokerage? What are brokers? A customs broker is typically regarded as a trusted and impartial intermediary, who mediates between traders and regulators, and has responsibilities to both sides.

Brokers deal with all the customs objectives and responsibilities, in that they ensure all authorizations, licenses, approvals, and documents are sourced from various parties in the supply chain and the forwarding chain, and are submitted for proper customs export and import.

They make sure products or goods are identified by the correct tariff code for import, and tagged with its corresponding country of origin or COO. In doing so, brokers ensure that the goods have an appropriate customs valuation submitted to the regulatory agency. And finally, brokers make sure the correct tax amounts are authorized and received.

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KRISTINA CARTER: So when in the shipment journey does the customs broker come into play? As you've learned from previous freight mode courses, global forwarding is quite like a relay race, with the factory or manufacturer at the starting point.

The supplier generally creates a commercial invoice and a packing list, which is then given to a trucker who adds a delivery order to bring the goods to the port operator. The commercial invoice and packing list are used by customs and the customs broker to check the cargo.

Around this point, the freight forwarder generates a bill of lading, and which an export filing is also submitted to the customs authorities for export clearance. The captain of the ship or the ocean carrier itself then creates a manifest, and helps complete customs requirements to move the import process forward with the destination country.

Around a week to a few days before arrival at the destination port, it is considered best practice to clear import customs so that the shipment can move smoothly forward once it arrives. After arrival of the goods in the port of destination, the import customs process continues. The import declaration moves along with the shipment delivery order for the trucker, all the way up to delivery of the goods at the consignee's facility.

Throughout the journey, it is the task of the customs broker to ensure that these data elements and documents are available at the right time to submit to government authorities either in the country of dispatch, any country the goods pass through in transit, and finally, the country of destination of the goods.