In international trade, the exporter doesn’t get their money and the importer doesn’t get their goods until unless they both comply with the laws and regulations that govern trade in that region. For this reason, playing by the rules is an essential ingredient for success.
As you can imagine, international trade operations are associated with a lot of risks. Various factors such as a complex system of import/export regulations, penalties, and customs issues require strict state supervision.
In order to achieve faster customs clearance, duty savings, reasonable and predictable costs, reduced regulatory oversight and a competitive advantage, you should dedicate resources to develop a diligent trade compliance program.
A compliance program will help you identify potential risks and mitigate issues related to customs laws in countries where you operate. In addition to that, you should do the following tasks regularly:
- Check and update customs and regulatory policies
- Review customs documentation with a particular emphasis on declaration and coding
- Train your staff to comply with regulations and follow the most efficient practices in the customs clearance process
- Build healthy long-term relationships with parties involved in the trade process, such as customs brokers, freight forwarders, government offices and customs authorities.
Essentially, smooth trade operations are only possible when you can identify and solve all compliance issues in a timely manner.
Compliance is one of the most complex aspects of international trade. Every country has a unique set of laws and regulations that apply to international transactions conducted in different industries and sectors of the economy. Whether you are an exporter or an importer, you should work closely with suppliers – they are the first people to consult about the details of compliance for your goods or services in their local market.
Here are a few things impact compliance procedures.
1. Understand the Harmonized System of Tariff Classification (HS Code)
The HS Code is comprised of names and numbers of traded products. It is an internationally standardized document that is used to set customs tariffs. The main purpose of the Code is to ensure that all parties involved in a trade deal use the right definition of goods and/or services that are exchanged.
An accurate classification is a legal responsibility of exporters and importers. Mistakes can have a snowball effect and result in incorrect duty rates, complex import and export controls, lengthy inspection procedures, delays at the border and heavy fines.
I can’t stress this enough – do not underestimate the importance of consulting a customs broker and getting correct codes for your products.
The image below provides a quick glimpse of how the HS code works.
2. Know the details of relevant Trade Agreements and Rules of Origin
A free trade agreement is a special alliance between two or more countries that removes tariffs and other obstacles for goods or services exchanged across common borders. Besides that, parties involved in the agreement impose equal tariffs on trade with non-member countries. State authorities play a crucial role in negotiating trade agreements.
If your home country has a free trade agreement with your target market or sourcing market, you should check regulations specific to this agreement prior to making commitments and arranging deals. For example, based on the agreement, customs authorities may require some specific standards for your imported or exported products.
Failure to meet these standards will result in fiscal penalties or delays in product delivery.
Another important factor that must be considered when conducting international trade is rules of origin. According to the World Trade Organization, rules of origin are the criteria that serve to determine the national source of a product. Knowing the point of origin helps to identify specific trade policy measures related to the exchange of your goods and services, such as safeguard measures, levied import duties, and additional anti-dumping duties.
Understanding different legal and administrative requirements of free trade agreements and rules of origin is crucial for any company involved in international trade. Not only does it save parties from an unintentional break of the rules, it also gives a clearer vision for prospective global market expansion.
3. Follow all regional standards for product use
Importers and exporters must comply with multiple regulations and standards related not only to the exchange of products but also to the use of these products both within their domestic and foreign markets.
First and foremost, a product should never be a part of the officially restricted group of goods and services. Besides that, attention should be paid to the rules imposed on technical features of your product, labeling, etc.
4. Pay extra-special attention to special categories
The nature of international trade forces you to work with many different state authorities, diverse regulations and legal requirements. Although exchange regulations of the majority of products are standardized by the World Trade Organization, some products fall into quite a sensitive area where each country has different import and export requirements.
These special categories double your workload by forcing you to conduct more research and spend more time adjusting your products to individual countries’ trade requirements.
For example, basic international standards for exchange of agri-food products, such as sanitary and phytosanitary measures, are defined by the World Trade Organization. However, each country also applies its own requirements related to food processing, labelling, testing, shipping, and storage.
This way, Turkish authorities require a special health certificate from the companies that want to import pet food products from other countries. In addition to that, they require an exporter’s production facility number to be approved by EU.
There are many different regulations and standards existing in international markets. As an exporter or importer, your responsibility is to keep your eyes open and to be vigilant about trade laws and regulations within the countries you operate. Compliance will ensure smooth and efficient trade practices, and is ultimately essential to the success of your international business.