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Kolja Mendel, Managing Partner

ACITA National Meeting, London, 3 October 2019

Global Tariffs, Additional Duties and Origin

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Brief introduction

— Mendel is a highly specialised publishing firm reaching back to the sixties of the last century.

— We are subject matter experts for global customs and foreign trade policies, regulations and measures, including tariffs and additional duties.

— In our classical publications like the German magazineFOREIGN TRADE we follow, explain and discuss current developments in this specific domain.

— Beyond that we provide specialised information anddata content services, covering the fields of tariffs, rules of origin, export controls and sanctions.

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Service areas and labels

Our services are differentiated by areas and rendered under the following labels:— Specialised publications: MendelPublishing— Online information services: MendelOnline— Data content provision: MendelContent— Research services: MendelResearch— Integrated services— Governmental services

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Market Access Database (MADB)

A comprehensive tool on tariff and non-tariff measures of various destination countries available under http://madb.europa.eu and major source for this information in the EU:

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Is there a problem?

‘Why do you state our goods were duty-free in the UAE? We actually do pay duties there.’A practical case: Import of computers into the UAE …and the attempt to explain the duties being paid:

— Customs duties?The GCC countries have acceded to ITA1 …

— Internal taxes?Not implemented before 2018 …

— Customs clearance fees?Not applicable to regular clearance …

— Charges for handling and brokerage!At least a reason is found …

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‘We could save millions in duties if I found a sponsor for this undertaking. However, in our corporation customs duties are treated as shared costs and nobody is really interested in that.’

— A relative lack of concern regarding customs duties?At least compared to internal taxation and especially towards third countries …

— Duty optimisation as the aim of projects?Yes, but often with a specific focus (e.g. preferences) ...

— Does optimisation not imply a sound state?… whilst there should be a complete overview.

— Are processes the condition or the result?Optimisation may be the result, but processes appear to be the condition.

Where is the problem?

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Which parties and interests are involved?

Manufacturer

Exporter Forwarder

Carrier 1 Carrier 2 Carrier 3

Distribution Partner

Importer Trader

Country border

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What is the implication of Incoterms®?

Exporter

Carrier 1 Carrier 2 Carrier 3

Importer

Country border

EXW

FCA

FAS

FOBCIF

DDP

DAT DAP

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Are the duties paid indeed the duties due?

‘We work with a sufficient margin to cover the risks of the import duties.’‘We apply a worst case scenario as to duties and taxes.’

— Who is the debtor?Although the debtor is defined by customs law(importer or representative) …

— Who pays what?… the actual payer is set out by the contractual terms between the parties.

— Duties or costs?Duties imposed by law should be distinguished from costs of service providers …

— Cost transparency vs. flat rates?… which is only possible when there is cost(and duty) transparency.

Importer

Declarant

Distribution Partner

Exporter

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Are the duties applicable to the commodity in question?

— What is the relevant criterion?Classification is decisive for all duties and taxation measures ...

— Who does the classification?… and thus calls for a thorough approach by a knowledgeable party.

— How to deal with this information?Checks and monitoring leading to adaptations and rectifications are necessary.

— Is official judgment available and helpful?Binding information on classification (origin, value) isusually available but may have adverse effects …

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What are basic features of tariff nomenclatures?

87.08.40. 20.10Chapter Heading HS subheading Regional or national subheadings

— Harmonized System (HS) is basically applied globally. — First 6 digits are identical provided the version is the same (and thus should be

the basis for information exchange).— HS amendments are implemented approx. every 5 years.— Regional and national nomenclatures usually change more frequently.

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Are the assessment bases applied correctly?

— What is the challenge?The customs value being the basis for duties and taxes needs to be determined correctly …

— What are the benefits?… and to be optimised in accordance to the local legal provisions.

— What to beware of?Beyond customs value there may be further impact factors:

— Different assessment bases— Different units of measurement— (Customs) exchange rates.

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Are additional duties deductible?

— Which additional duties are deductible?Depends on the national tax legislation, but usually those in a VAT alike system.

— Who is entitled for deduction?Usually the party that owns the goods at import (and is registered).

— What is a ‘landed cost’?The total of all duties, taxes, levies and fees results in a landed cost that has an implication on the marketability of merchandise.

— Are there further implications on international sales?Some countries indeed apply withholding taxes at the entry of goods, and also to the international transfer of funds.

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Preferential origin = positive origin?

— What is the benefit?The margin between the regular (i.e. MFN rate) and the preferential rate. Thus, evaluation should start with theregular rate(s).

— What are the efforts?Compliance with the different rules of origin, calculation and documentation.

— What are the risks?Complexity of the system, especially in view of necessary declarations in the supply chain.

— Further aspects to consider?Correct application in the partner countries, dismantling schedules and steps.

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Non-preferential = negative origin?

— What are general duties?Certain countries still apply general duties for those origins not falling under MFN treatment.

— What about trade defence instruments?Safeguards, antidumping or countervailing duties are a specific risk and at times hard to calculate.

— What are additional duties?Additional duties are target oriented measures as part of the current trade war scenarios.

— Which non-tariff implications exist?Certification or declarations of origin, made-in labelling – most importantly unambiguous!

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Advantages of the choice of customs procedure?

— When should free circulation (home use) be chosen?Only when necessary, however for duty-free goods only non-deductible taxes are to be considered.

— What is the implication of common market(s) and customs unions?The EU common market is rather the exception than the rule, such as its customs union with Turkey; unified tariffs do not mean free movement of goods.

— What is the purpose of suspensive procedures?Virtually all customs legislations comprises suspensive procedures enabling the avoidance of free circulation.

— What about free zones?In free zones, goods do not enter the customs territory and are subjected to facilitated clearance; other incentives may be offered.

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Are favourable measures applicable?

— Are tariff quotas available?General or preferential quotas may be available, predominantly in the field of agricultural goods; usually application is necessary.

— Are there any suspensions or concessions for my products?For certain products but also end-uses or even specific end-users, there may be specific concessions available.

— Does the transaction allow for exemptions from customs duties?Apart from the tariff-related suspensions, there may exemptions for specific transactions, often defined separately from the tariff.

— Are there special simplifications?For governmentally initiated or supportedprojects there may special incentives.

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Negative implications of non-tariff measures?

— What is the implication of non-tariff measures?Requirements and necessary documents should be known in advance by the responsible parties; otherwise delays and additional costs and duties may apply.

— What is the relevant criterion?Again, classification is decisive – but the consequence is different.

— When is right point to check the situation?Before an actual transaction which is new or happening under changed conditions. For known transactions depending on the level of suffering …

— Has everything necessary been done – was everything done necessary?In fact, legal requirements tend to be mixedup with trade practice and party interests.

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Which information is necessary?

— Internal informationAll aspects of the transaction which are related to the business cases of the company.

— External informationAll information from other parties including authorities, business partners and information service providers.

— Master data managementBoth from internal and external sources, master data onmaterials/products, business partners and legalrequirements has to be built up and maintained.

— Impact on processesNew information or changed master data may lead toan adaptation of processes.

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How to apply forecasting and monitoring?

FORECASTING

RESULTS MONITORING

GAP ANALYSIS

PROCESS ADAPTION

TRANSACTION

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How to apply forecasting and monitoring?

— ForecastingAll aspects with an implication on the duties and costs of the transaction are analysed in advance.

— MonitoringThe results from the real-life transactions are gathered in a structured manner to allow for evaluation.

— Gap analysesThe differences between forecasting and monitoring are evaluated andthe gaps are established.

— Process adaptationsFor those gaps where optimisation is possible, processes are adaptedaccordingly.

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What are the results?

— Processes – condition or result?Optimisation needs transparent processes – these are the condition, their adaptation may be the result.

— Best practice?Improvement is ideally made by forecasting, monitoring and adaption.

— Positive side effects?Risk minimisation as a result of the evaluation of positive and negative factors.

— What is the scope?Assessment of all factors allows for concentrationon the essentials relevant for the actual business environment and needs.

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Thank you for your attention!

All questions, queries to be channelled through ACITA!