Documented Customs Challenges: Avoiding Customs Delays Brought On By Poor Document Preparation
Exporters seeking markets with the most potential should look to developing countries but be prepared to deal with customs and other regulatory problems.
“You have to look at the customs issues,” says Greg Sizemore, Charlotte-based director of North Carolina’s U.S. Export Assistance Centers. “Many companies that export successfully are exporting to developing countries. Those countries may not have as clear import processes as others, but there’s so much demand for product that it’s worth it for a U.S. company to go into that market although it may be hard to enter.” The issues are little different than they are for other countries, but are more costly and difficult to deal with when problems occur, he says.
As David S. Robinson, special counsel in the Raleigh, North Carolina, office of the law firm Nexsen Pruett, says: “Every country is different. Even in the same country, different ports of entry are different. We have lots of people that get hit with surprises and they’re generally financial surprises. They’re not used to asking all the questions that are associated with an international export transaction.”
“Delays do happen,” Sizemore admits. “The three most common problems are with the product description, the paperwork and the foreign buyer. Often there’s a discrepancy on the documentation going into that country and it’s held up in customs because customs officials don’t understand the terminology on the documentation.”
He explains that when the U.S. Commercial Service in the U.S. Embassy in that country is contacted, someone there can “talk with the foreign customs officials to try to negotiate a solution to that discrepancy, maybe describe why the U.S. company used that terminology on the documentation. If it’s the measurement unit they used, help convert it. That tends to loosen things up and the U.S. product is able to clear customs because there’s a U.S. government official on that end in the U.S. Commercial Service working with foreign customs officials trying to get that U.S. product through customs.
“So it’s representation by the U.S. government in that country,” he says, “that helps get things through customs if there’s a discrepancy.”
Shipments also may be delayed, according to Sizemore, because of discrepancies regarding the three-letter International Commercial Terms—“INCOTERMS”—that relate to contractual sales practices; for example, DDP for “delivered duty paid.”
But the “most common discrepancy” that causes incoming products to be held up by a foreign country’s customs, he says, is the “lack of clarity” over the six-digit Harmonized System (HS) code that is used to determine the levy placed on the incoming product.
“So if customs officials are not quite sure that’s the right number,” Sizemore says, “products are held up at customs. Then the U.S. company may have to go get some sort of official ruling from that foreign government that the HS number is correct.”
Sizemore points out that this typically pertains to the levying of duties on that product. “That’s why the HS number is looked at very closely by customs officials.”
“How you define your product could result in different fees or duties being imposed,” Robinson says. “We always advise people to spend a little money upfront so you can make a case and defend what you want your HS code to be. And defend the duty you think should be imposed on your product.”
A product may fall into two different categories with two different numbers and two different duties, he explains, making it “worth taking the time and the resources upfront to make sure you fit squarely into the lower duty.”
Some avoidable customs problems can be caused by the foreign purchaser or distributor.
“Foreign buyers should not be allowed to take title until the goods are delivered,” Sizemore advises. “We recommend that you keep as much [of a shipment] under your control for as long as possible. Those terms can be negotiated with the buyer. Otherwise you give control over the shipment as soon as it leaves the dock.”
This could leave an exporter responsible for violations of the Foreign Corrupt Practices Act (FCPA), warns Robinson, such as bribes being paid to get your products through foreign customs.
“The FCPA allows for some facilitating payments and prohibits and penalizes harshly other types of payments,” he points out. “A lot of this happens in customs. If it is a customary payment purely for purposes of facilitating routine transactions and everybody knows it’s a customary fee, then the U.S. government is going to say it’s appropriate. Exporters have to make sure they understand that verbiage very carefully because it’s kind of a finite safe harbor.”
Some of the delay-causing problems can be avoided simply by going to the Internet, Robinson stresses.
“You used to have to rely on third parties to look it up for you,” he says. “But a lot of those resources are available on the internet now, such as ‘Table of Import Duties-Nigeria’.”
“You have to go to Export.gov,” says Tom Robinson, vice president of Kernersville, North Carolina-based ERD Ltd., Inc., which repairs antiquated electronics equipment for international customers. “You can get a wealth of very current information as to what’s going on. That’s part of the key for exports, so we consult that. There’s no better place to go.”
At Export.gov, which is operated by the U.S. Department of Commerce, companies can find help for dealing with HS codes, tariffs, customs regulations, trade barriers, import licenses and duties and other topics involved with exporting. Also available for download are “Doing Business in. . .” commercial guides for 153 different countries.
Robinson says Export.gov and the websites of prospective customers help ERD avoid potential problems and even problematic countries. “Brazil is a country that we have pretty much intentionally avoided,” he says, “because the dynamics of change are so drastic day-to-day who knows what tomorrow holds.”
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