Chapter 4 Customs Procedures and Compliance

Chapter 4: Customs Procedures and Compliance


Prepared by Dr. Sharon

About chapter 4:

Lecture Overview:

• Objective: By the end of this lecture, students will understand the customs clearance process, the importance of compliance with international trade laws, the role of customs brokers and freight forwarders, and practical applications of customs procedures.

​Learning Outcome:

• Analyze the step-by-step customs clearance process.

• Evaluate the importance of compliance with international trade regulations.

• Understand the roles of customs brokers and freight forwarders in facilitating trade.

• Identify challenges and develop strategies to ensure customs compliance.

• Apply practical knowledge by preparing and submitting customs documents.

• Customs is a charge payable on goods, capital or services when they cross a customs border.

• Most customs duties are import duties, which means that the duty is due when a good is imported.

• In English-speaking countries, "customs" refers to both: customs duty and the competent authority.

• The customs authority is responsible for customs clearance.

​

A Definition of Customs

​Retrieve from: https://dhl-freight-connections.com/en/business/customs-101-for-logistics/

Introduction

Definition of Customs Procedures:

• Customs procedures refer to the set of rules and regulations governing the import and export of goods across international borders.

• Every country has its own customs regulations that must be followed by importers and exporters.

Introduction

Importance of Customs Procedures:

• Ensures that goods entering or leaving a country are safe, legal, and compliant with trade laws.

• Prevents illegal activities, such as smuggling and under-declaration of goods.

• Secures revenue for governments through taxes and duties.

​​Retrieve from: https://www.crowley.com/all-about-customs-clearance/

Step 1: customs paperwork

​https://www.dhl.com/discover/en-my/logistics-advice/essential-guides/shipping-documents-export-import-complete

Step 1: customs paperwork

Key Documents Required:

• Bill of Lading (BL): A legal document between the shipper and carrier detailing the type, quantity, and destination of the goods.

• Commercial Invoice: A document that details the transaction between buyer and seller, including prices, payment terms, and shipping instructions.

• Packing List: A document that details the physical packaging of the goods.

• Certificate of Origin (COO): A document that certifies where the goods originated, which can affect the duties imposed.

• Customs Declaration Form: An official document that provides details about the goods being imported or exported.

• The bill of lading is a legally binding document that provides the carrier and the shipper with all the necessary details to accurately process a shipment.

• It has three main functions:

  • It's a document of title to the goods described in the bill of lading.

  • It's a receipt for the shipped products.

  • It represents the agreed-upon terms and conditions for the transportation of the goods.

​

​Understanding Bills of Lading

Retrieve from: https://www.investopedia.com/terms/b/billoflading.asp#:~:text=A%20bill%20of%20lading%20is,of%20the%20goods%20being%20carried.&text=This%20document%20must%20accompany%20the%20shipped%20goods%20and%20must%20be,carrier%2C%20shipper%2C%20and%20receiver.

• A commercial invoice is a specialised export document that acts as a customs declaration for items being delivered across international borders.

• The commercial invoice serves as a contract and evidence of sale between the seller and the customer in addition to being a customs obligation. It describes the conditions of the sale, such as the number and description of the items, the terms of payment, and other important information. 

​

Understanding the meaning of Commercial Invoice

​Retrieve from: https://www.dhl.com/discover/en-my/logistics-advice/essential-guides/how-to-prepare-a-commercial-invoice#:~:text=The%20commercial%20invoice%20serves%20as,payment%2C%20and%20other%20important%20information.

• A Packing List is used in most commercial transactions.

• This document provides information as to how goods have been packaged/loaded in shipments and is used for customs clearance.

• ​The other documents that should accompany a packing list includes the commercial invoice, which details the transaction between buyer and seller. A bill of lading is also necessary; it acts as a receipt for shipped goods. In some cases, a certificate of origin, which verifies where the goods were made, is needed. Together, these documents help in shipping, customs clearance, and delivery processes.

Packing List

​​Retrieve from:https://incodocs.com/template/packing_list

• A Certificate of Origin (CO) also sometimes known as C/O Form D is a legal document that certifies the country of origin of products that are being exported. It is provided by the appropriate authorities. It serves as proof, demonstrating that the goods came from a specific nation or area. Important details about the exporter, the goods, its harmonised system number, the country of origin, and the authority's stamp or signature are all included in the CO.

Certificate of Origin

​​​Retrieve from: https://incodocs.com/template/certificate_of_origin & https://www.dhl.com/discover/en-my/logistics-advice/logistics-insights/certificate-of-origin

​Retrieve from: https://www.dhl.com/discover/en-my/logistics-advice/logistics-insights/certificate-of-origin

​​Retrieve from: https://www.dhl.com/discover/en-my/logistics-advice/logistics-insights/certificate-of-origin
and https://info.baliintercontcargo.com/articles/certificate-of-origin-coo/

​​​Retrieve from: https://dhl-freight-connections.com/en/logistics-dictionary/customs-declaration/

​​Retrieve from: https://www.crowley.com/all-about-customs-clearance/

step 2: Customs Inspection and Clearance

• Customs Inspection:

  • Goods may be inspected physically or scanned to ensure compliance with local regulations and ensure no illegal items are being imported/exported.

• Customs Clearance:

  • Once the goods are approved by customs authorities, they are released, and the importer/exporter is notified.

step 3: Payment, Tax and Duty

How Duties and Tariffs are Calculated:

• Based on the Harmonized System (HS) code, which classifies goods by their material, function, and type.

• Ad Valorem Duties: Taxes imposed based on the value of the goods.

• Specific Duties: Taxes imposed based on the quantity or weight of the goods.

​Compliance with International Trade Regulations

The Importance of Compliance

• Penalties for Non-Compliance:

  • Fines, shipment delays, goods seizure, or denial of entry.

• Legal Frameworks:

  • World Trade Organization (WTO) standards for international trade.

  • Free Trade Agreements (FTA): Bilateral or multilateral trade agreements that can affect duties and tariffs (e.g., ASEAN Free Trade Agreement).

Roles of Customs Brokers and Freight Forwarders

Customs Brokers

• Definition: Licensed individuals or companies that handle customs clearance for importers and exporters.

• Role:

  • Preparing and submitting documents.

  • Calculating duties and tariffs.

  • Representing clients during customs inspections.

  • Facilitating smooth import/export operations.

• Example:

  • A logistics company outsourcing customs clearance to a customs broker for a large shipment of machinery to Europe.

Roles of Customs Brokers and Freight Forwarders

Freight Forwarders

• Definition: Companies that arrange the transportation of goods across borders, acting as intermediaries between the shipper and the transportation service providers.

• Role:

  • Coordinating with carriers, managing paperwork, and ensuring goods are delivered on time.

• Example:

  • A freight forwarder organizing the multimodal transportation of perishable goods from Malaysia to Europe.

Challenges in Customs Compliance and Strategies to Overcome Them

Common Challenges:

• Delays in Documentation: Incorrect or incomplete documents leading to delays in customs clearance.

• High Duties and Tariffs: Unexpected or high import tariffs affecting profit margins.

• Regulatory Changes: Sudden changes in import/export laws in different countries.

Challenges in Customs Compliance and Strategies to Overcome Them

Strategies to Overcome Challenges:

• Automating Documentation: Using digital platforms to manage and submit customs documents, reducing human error.

• Hiring Customs Brokers: Outsourcing customs clearance to licensed professionals for complex shipments.

• Regular Compliance Audits: Periodically reviewing company processes to ensure ongoing compliance with customs regulations.

Video Response

Mock Exercise: Customs Document Preparation

• Objective: Students will simulate preparing and submitting the required customs documents for a mock international shipment.

Instructions:

• Scenario: A company in Malaysia is exporting electronics to the U.S. Students are tasked with preparing the customs documents, including the Bill of Lading, Commercial Invoice, Packing List, and Certificate of Origin.

• Process:

  • Each group will be assigned different roles (customs broker, importer, or exporter) and will complete a mock customs clearance process using the provided documents.

  • They will calculate duties and taxes based on the HS codes provided in the scenario.

Debrief and Discussion:

• Review the documents prepared by each group.

• Discuss the key lessons learned and the importance of accuracy and compliance in customs procedures.

Open Video Recorder

Conclusion and Recap

Key Takeaways:

• The importance of customs procedures and accurate documentation in international trade.

• The role of customs brokers and freight forwarders in facilitating smooth trade operations.

• Strategies to ensure compliance and overcome challenges in customs clearance.

Recap quiz

Multiple Choice

Which of the following is NOT a document required for customs clearance?

• Commercial Invoice

• Packing List

• Bill of Materials

• Certificate of Origin

Dropdown

The Bill of Lading is a document that provides details about the shipment and serves as a receipt for the goods being transported.​

Select answer

Match

Match the international trade regulation to its purpose.

• Sanctions

• Import License

• Harmonized System (HS) Code

A trade barrier to restrict goods from c

A permit required to import restricted g

Classifies goods for import/export and s

• A trade barrier to restrict goods from c

• A permit required to import restricted g

• Classifies goods for import/export and s

Multiple Select

Your company is exporting medical supplies to a country that has recently imposed a higher duty on such goods. What actions should you take to avoid penalties or delays? (Choose two)

• Recheck the HS code used for the goods.

• Ignore the change and proceed with shipment.

• Adjust the commercial invoice to show a lower value for the goods.

• Consult a customs broker to ensure proper compliance.

Video Response

"What aspect of customs compliance do you find most challenging, and how do you plan to improve your understanding of it?"

Open Video Recorder