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Understanding Customs Bonds

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Archives, Global Logistics, Global Shippers 101, Global Trade Daily, Imports/Exports

Understanding Customs Bonds

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When you’re constantly plagued by bureaucracy and inventory management in the world of shipping, there’s one moment that makes it all worth it: importing the goods. However, that process has one extra step before it’s finalized — obtaining a customs bond. But what does this actually entail? Why must you even have a customs bond? And which one should you get? Don’t worry — we’ll help you with understanding customs bonds right here!

Bonds, Customs Bonds

First of all, we should note that all information found here is valid for the ocean ports and other import points in the United States. The notion of a customs bond originated here. To define it in the simplest possible terms, a customs bond is something like an insurance policy during the import process. But not for you — for the government of the United States. It’s a guarantee that all import taxes and duties will be paid. In the professional world of shipping between leading ports, this is simply called a “bond”.

But why must importers have one in the first place? To paraphrase Benjamin Franklin’s famous quote, the only two things that are sure in the world of importing and exporting are taxes and duties. If you have a customs bond, the government has a solid guarantee that it will receive its taxes and duties; even in a force majeure event that leaves your logistics company helpless to pay.

In other words, if an import company goes bankrupt, this bond will cover the air and/or ocean shipments in terms of duties and taxes. This is something that you’ll simply be required to have if you want to import anything into the United States; it’s all within the price of doing business. And bear in mind that these bonds expire as well, so don’t expect to hold onto the same one forever.

Bond Requirements

So, when do you need a customs bond? Mainly, when you’re trying to import goods for commercial purposes with an estimated value of more than $2,500. Apart from this, there may be other requirements for particular goods posed by different agencies of the United States government.

As an example — if you’re importing food items, you will be required to obtain a customs bond regardless of the amount or value of the items. You will also need to comply with other FDA regulations.

When it comes to the different types of bonds that you can have as an importer, there are two primary ones. There are continuous bonds and single-entry bonds. Their names are pretty self-explanatory — the latter only covers a single import shipment, while the former is valid for multiple shipments in a certain time period. Usually, we’re talking about twelve months.

So, which one should you get? This largely depends on the nature of your business. If you’re someone who only imports goods on a rare occasion, like a couple of times a year, you may not need anything more than a single-entry bond.

Obviously, a continuous bond represents a far better option if you’re going to be shipping regularly. And this type of bond has another benefit; when you’re completing the Importer Security Filing information, you won’t have to buy additional bonds. This is data that you need to submit in advance before you load any goods on a ship in a country of origin that’s headed for the United States. Having this information allows the CBP enough time to judge if your cargo poses any security or safety risks.

Bond Expenses

Now that we’ve explained the nature of customs bonds, the question that must be on your minds is — how much do they actually cost? Well, you need to look at customs bonds like any other kind of insurance policy. In the sense that, when you purchase a bond, it’s valid for a specific level of coverage. And naturally, the cost of continuous and single-entry bonds differs.

Single-entry ones can be quite tricky. The minimum amount that you’ll pay for the bond can’t be lower than the estimated monetary worth of the goods plus the taxes that you’d have to pay for their import.

And if these goods have to comply with other agency regulations as well, the initial value is raised to three times their estimated value; that would be the case with the above-mentioned food items, for instance.

When it comes to continuous bonds, the situation is far simpler. The minimal amount is $50,000 — alternatively, it can be ten percent of all the fees and taxes for imports that you’ve paid during the previous fiscal year. That means that the expenses for the bonds can vary, but they’re still far more cost-effective if you’re someone who regularly ships things between ports.

And finally — how do you actually obtain a bond in practice? The easiest method is going through a freight forwarder or a customs broker, that will deal with all of the assorted paperwork. On the other hand, if you’re going to do so yourself — the Treasury Department issues licenses to sureties that will sell you a bond.

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Samwell Stein is a freelance author and logistics advisor. He frequently cooperates with professional shipping and moving companies like Transparent International and advises them on the best industry practices.

hs code
Archives, Global Logistics, Global Shippers 101, Global Trade Daily, International Trade

HS Code Classification Freeway: Take Your Exit

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Since the introduction of the Harmonized Tariff System (HTS or HS) in January of 1988 and its global implementation in following years (for example, in the U.S. on January 1, 1989), classifying products (i.e., associating the tangible product to its related HS code) has been a global party. Used on import (and export) declarations, HS codes identify the duty rates applicable to the specific goods, relate to statistics, give regulators an opportunity to link Anti-Dumping Duties (ADD) and Countervailing Duties (CVD) to products, dictate how to qualify for preferential treatment, and can govern document and license requirements. Quite a laundry list—and that makes the correct HS code classification an important piece of information, especially when using an incorrect classification can lead to penalties and delays upon import.

In the U.S., with roughly 16,000 HS codes to choose from, a customs ruling database for U.S. classifications only (CROSS) that is 206K classifications strong, ongoing changes to import tariffs, and a massive World Customs Organisation-initiated overhaul every five years (2022 here we come), it is no wonder classification is evergreen on trade compliance professionals’ list of concerns that demand a significant amount of attention.

To make it more complicated—although harmonized globally at the six-digit level, local authorities are allowed to differentiate down to a local nth digit (usually eight or 10) and have not been hesitant to do so. For example, the U.S. and European Union both support HS codes that have 10 digits, but few are the same or represent the same products. As import declarations are filed locally, this implies that, for each importing country, a different HS code must be identified and then maintained for any product shipped into that country. Do the math: a product catalog of 50,000 parts that ship to 50 different countries adds up to a solid 2.5 million classifications. Not something to maintain on the back of an envelope—unless it’s a really, really big one, erasers are cheap, and pencils are free.

With widely diverse needs for classification (e.g., from a B2C ecommerce shipment of two cotton T-shirts that need an HS code for a quick landed costs calculation, to raw materials and semi-finished products for manufacturers, to a single unique import of a $10 million factory engine), it is no surprise that any self-respecting Global Trade Management (GTM) solution or consultant is happy to assist companies in desperate need for those classifications. And no wonder that, since around 2000, numerous software companies have been trying to solve the mystery of auto-classification.

The diversity in the initial reason for classification comes with different parameters for success. For an ecommerce retailer, an autoclassification tool can solve many challenges (e.g., quick returns, high volume of items are immediately classified), but accuracy can be a challenge. A lack of accuracy is not something importers can afford when, for example, the classification determines whether the import is subject to ADD, is heavily restricted from a license perspective, or is subject to quotas. Basically, (auto-) classification is like a freeway and, depending on the exact needs, companies take a different exit.

There are three key components to a successful (auto-) classification project—other than, of course, the hopefully not superfluous statement that a decent amount of classification expertise comes in handy when either classifying or building a tool.

First, the quality of the product description. ‘Garbage in, garbage out’ also applies to classifying. Poor descriptions, lack of product detail, or even incorrect specifications will likely lead to an incorrect HS code with all related consequences. For quality descriptions, product managers or developers may get involved to provide the necessary technical detail as some classification decisions are made based on those elements.

Second, the classification logic. Whether the classification is assigned by a person or a tool, classification logic cannot lack, well, logic. This means many things: rules that decide to classify a piece of clothing that is not gender-specific as textiles for female or male (and the U.S. handles it differently from the EU); rules-based classification that guides the correct classification in a decision matrix fashion; the ability to ignore information not relevant to the classification (e.g., color); or the ability to observe characteristics that may be needed in one case but not for another (e.g., weight), including material compositions that are usually very important. The logic must also account for a way to ‘smart search’, or search across different references to generate results from, such as synonyms, natural language, industry jargon, and even from images. In addition, classification logic means integrating Artificial Intelligence (AI) and Machine Learning (ML) into the application so results can automatically improve, which enhances both the number of items classified and the quality of the classifications without human intervention.

Third, the classification reference database. The classification logic must look to match a description with an HS code not only by matching it with a ‘word in the tariff’ but also with the explanatory notes and, preferably, for broader context a natural language reference. This might include a shipping manifest reference or information gained via access to previous imports and classification repositories of identical products. Regardless, all types of references need to be reviewed before the final classification is determined. The logic is only as sound as the foundation on which it is built.

It’s important to keep in mind that references are also where, as an industry, companies should actually assist one another. Data privacy concerns notwithstanding, there must be a way to ‘crowd source’ references, which could reduce the efforts made and resources spent on classification in sensational fashion—engineering a classification freeway that is even more well-marked and efficient to traverse.

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Archives, Global Trade Daily, News

Customs Changes Course: No Longer Accepting Requests to Defer Duty Payments

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On Friday, March 20, 2020, Customs announced that it was accepting requests for short-term relief from payment of estimated duties, taxes and fees due to the COVID-19 emergency, as discussed here.

Nevertheless, on March 26, 2020, Customs issued “Additional Guidance for Entry Summary Payments Impacted by COVID-19” that revised the information and policy in the earlier announcement. In its “Additional Guidance” Customs stated that it was no longer accepting requests for additional days for payment of estimated duties, taxes, and fees, but commented that CBP retains the right to allow additional days for payment in narrow circumstances, such as physical inability to file entry or payments, based on technology outages or port closures.

Single payments, daily and periodic monthly statement payments of estimated duties, taxes and fees that should have been tendered from 3/20/2020 through 3/26/2020, payment must be initiated by 3/27/2020. Trade members who did not pay Customs for estimated duties, taxes and fees from 3/20/2020 through 3/26/2020 must initiate payment by 3/27/2020.

Separate from reversing its policy on a limited number of “additional days” for duty relief, we also reported that CBP was considering a more extended 90-day tariff relief plan. Recent reporting, though, indicates that this 90-day tariff relief plan has been shelved. We understand that a number of senior administration officials (including Treasury Secretary Mnuchin and economic adviser Larry Kudlow) were in favor of granting the relief, but were outweighed by others within the Administration (Peter Navarro) as well as influential individuals in the private sector aligned with more protectionist policies.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

 Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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Archives, Global Trade Daily, International Trade

U.S. Regulators Focus on Compliance Efforts in Enforcement Decisions Involving International Companies

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Over the past few years, U.S. regulators have made it clear that having comprehensive and effective compliance policies covering trade is a must, regardless of the company size, location or industry. The government’s move to formalize the importance of compliance programs is a clear signal of what it expects and a harbinger of what is to come.

Why Is Trade Compliance Important Regardless of the Company’s Location?

Trade compliance should be the goal of every global company, in particular as a risk mitigation measure and a positive value proposition. A compliance program serves as a security blanket for large financial institutions accustomed to dealing with regulations, small startups with a cloud-based platform, and even companies with no physical presence in the United States. A trade compliance program lays the groundwork for international companies on how to conduct business in or with the United States.

With changing industry regulations, it is critical to keep up to date and have a compliance program that is effective. Failure to have a strong compliance program could result in increased legal exposure, potentially leading to fines and penalties as well as negative publicity associated with an enforcement action. Maintaining an effective trade compliance program could help companies mitigate penalties for potential violations, and is ultimately cost-effective. For example, last year, the U.S. government imposed $1.3 billion in penalties on cargo firms, penalties that could have been mitigated with robust compliance programs.

 Avoiding U.S. Sanctions

Engaging in the complex global supply chain may be a financial win, but it requires formalized diligence procedures to ensure your company does not run afoul of the law. The Department of Treasury’s Office of Foreign Assets Control (OFAC) has released guidance encouraging organizations to employ a risk-based approach to sanctions compliance and focus on five essential components: senior management commitment, risk assessments, internal controls, testing and auditing, and training. To incentivize companies to engage in international transactions, OFAC also provides that in the case of a violation, it will give favorable consideration to companies with effective sanctions compliance programs and that the existence of such a program may mitigate a civil monetary penalty.

OFAC is not just issuing guidance, it is increasing its enforcement efforts involving both U.S. and foreign entities. It continues to designate more non-U.S. entities that have helped evade U.S. sanctions. For example, several Chinese shipping companies were found to have violated North Korean sanctions, and as a result, were blocked from doing business in the U.S. or with U.S. parties. In January 2020, Eagle Shipping, a Marshall Islands ship management company with headquarters in Stamford, Connecticut, agreed to pay $1,125,000 to settle its potential civil liability for 36 apparent violations of the Burmese Sanctions Regulations. The violations involved Eagle Shipping’s affiliate in Singapore entering into a chartering agreement with Myawaddy—an entity identified on OFAC’s List of Specially Designated Nationals and Blocked Persons. Eagle filed an application with OFAC requesting a license authorizing it to carry sand cargoes purchased from Myawaddy but continued its dealings while the OFAC application was pending. OFAC ultimately denied the license, but Eagle resumed its dealings with Myawaddy, carrying cargo from Burma to Singapore.

Among the aggravating factors, OFAC considered Eagle’s status as a sophisticated shipping company, which should have had expertise in international trade and global shipping transactions. Among the mitigating factors, OFAC considered Eagle’s efforts to develop and implement a formal sanctions compliance program with specific policies and procedures for compliance screening, transaction checklists, and red-flag identification tools.

Compliance Under Commercial Export Laws

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS), which administers U.S. commercial export control regulations, also has published comprehensive guidance for companies working to develop or shore up compliance materials. In its guidance, BIS identified the following elements as foundational in creating an effective Export Compliance Program (ECP): management commitment, completing regular risk assessments, obtaining proper export authorization, record-keeping, training, compliance audits, addressing export violations and taking corrective actions, and maintaining your ECP. Like OFAC, BIS emphasizes the importance of tailoring your ECP to your organization and business based on size, volume of exports, geographic location, and other relevant factors. Companies that fail to comply with regulations that govern export controls have experienced significant penalties.

The U.S. export control laws govern not only U.S. companies, but also certain export activities of foreign companies dealing with the export of certain products, technology, or services from the United States to a foreign country. For example, most recently, BIS imposed substantial export and reexport restrictions on Huawei, a Chinese company, and its 68 non-U.S. affiliates in connection with Huawei’s violations of U.S. export laws specific to the Iranian Transactions and Sanctions Regulations. As part of that action, BIS restricted any export, re-export, or transfer of U.S.-origin technology, commodity, or software to Huawei and its entities without an export license.

This enforcement action ultimately impacted both the U.S. and non-U.S. businesses, including big and small tech companies, suppliers, importers, shippers, and financial institutions. Separately, in 2017, the U.S. government imposed a $1.2 billion criminal fine against ZTE, a Chinese telecom equipment company, for shipping U.S.-origin telecommunications equipment to Iran and North Korea. These two cases have affected how U.S. and foreign companies view their compliance programs; they also have incentivized the development and implementation of more robust compliance programs, including vetting procedures and sanctions checks that ensure adherence to the U.S. export control regulations.

Recommended Steps for Ensuring Compliance and Mitigating Risk

-The benefits of having a compliance program in place when a mistake happens are significant. When creating your tailored trade compliance policies and procedures, remember the following:

-Compliance programs should include a comprehensive, independent, and objective testing or audit function to ensure that your business is aware of how its programs are performing.

-Programs should be updated regularly in light of constantly changing regulatory and business environments.

-Ensure that your compliance program has comprehensive coverage to track all parties involved in import and export transactions.

-Even products that seem harmless can be used in ways that companies do not intend. As an organization, you are responsible for knowing how your products will be used and for avoiding government-prohibited end uses.

-Watch for red flags on BIS’s published list.

-Watch for “deemed” exports, which are released in the United States of technology or source code to a foreign person. Such a release is deemed to be an export to the foreign person’s most recent country of citizenship or permanent residency, which may require a license or even be prohibited.

Now more than ever, government offices and agencies are providing the industry with guidance on how best to comply with trade regulations. However, this also means that companies can no longer claim ignorance of trade regulations. Today, companies participating in the global marketplace must take proactive preventive measures to ensure compliance, mitigate risk, and minimize potential penalties.

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 Doreen Edelman and Zarema Jaramillo are attorneys at Lowenstein Sandler.

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Archives, Global Trade Daily, Imports/Exports, In The News

Customs Providing Immediate Short-Term Duty Deferrals to Approved Importers Working to Provide Longer Term Relief to the Importing Community

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Short term case-by-case relief to approved importers: On Friday, March 20, 2020, Customs issued the following message:

Due to the severity of Novel Coronavirus Disease (COVID-19), U.S. Customs and Border Protection (CBP) will approve on a case by case basis additional days for payment of estimated duties, taxes and fees due to this emergency. Please note we are working on a future message that will provide further information. Please watch your CSMS messages.

NOTE: CBP has confirmed that the March 20, 2020 debit authorizations for the Periodic Monthly Statements and the daily statements have been transmitted to the Department of Treasury. Please work directly with your financial institution if you wish to prevent these funds from being withdrawn.

Requests should be directed to the Office of Trade, Trade Policy, and Programs at OTentrysummary@cbp.dhs.gov.

We are advised that companies sending requests for “additional days” are receiving responses from CBP such as the following:

Thank you for your message. Yes, you are approved for additional days for payment due to the COVID – 19 emergency. Please note we are working on a future message that may provide an additional timeframe for payment. Please watch your CSMS messages. Please let me know if you have any additional questions.

Based on the above CBP Message and anticipated response, our comments and suggestions for companies seeking “additional days” for payment of duties are as follows:

-CBP does not specify the number of “additional days” in its Message or the response; however, we are advised that for the time being Customs is granting an additional 10 days to specifically approved companies.

-The message does not specify the information to be provided in the request. At a minimum, companies requesting additional days for payment of duties, taxes, and fees owing should include the exact company name and their Importer of Record (IOR) number with the request. Additionally, it may be prudent to include a brief statement specifying the company’s need for the additional time requested and the harm that the company is currently facing.

-The CBP Message advises companies granted additional days to “work directly with your financial institution.” Even if CBP grants the additional days requested, Customs at this time does not have the ability to stop its automated system from requesting the transfer of funds (duties, fees, taxes) from designated bank accounts for specific companies. As such, the company responsible for payment of the duties and fees will need to coordinate with its bank (i.e., its financial institution) in advance so that the bank will block incoming funds transfer requests from CBP. We are advised that CBP’s system normally transmits electronic payment requests three times, so the bank should be prepared to block transfers in response to all three incoming CBP requests.

-CBP’s system automatically generates liquidated damages notices for non-payment and late payment of duties, fees and other amounts owing. Companies receiving “additional days” for payment of amounts owing should expect to receive such notices. We understand that providing the CBP authorization message to the approved party should be sufficient to cancel any such notices in their entirety (assuming that the amounts owing were fully paid within the extension period).

-The CBP Message covers “estimated duties, taxes, and fees.” We are not aware that it provides additional time for the payment of penalties, liquidated damages or other amounts that may be owing CBP.

-We are aware that industry groups have identified different parties for the “additional days” request other than the party identified in the CBP Message (OTentrysummary@cbp.dhs.gov). At this time, we recommend that companies seeking additional days should use the email address specified in the CBP Message.

Likelihood of longer-term (90-day) relief to the importing community: In response to ongoing discussions and requests by several trade organizations CBP is considering a 90-day extension that would be applicable to the larger importing community. Essentially, this would align duty payments with the 90-day extension currently granted by the IRS to tax filers. We expect CBP to issue a Federal Register concerning this broader extension policy in the near future and will provide updates accordingly.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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Archives, Global Trade Daily, Trade Cycle

Traits of Reliable Customs Clearance Agents

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Do you know anything about freight forwarding companies and customs clearance agents? If you are getting ready to ship your belongings abroad, you need to get familiarized with these two notions. In order to complete a successful freight forwarding process, choosing reliable customs clearance agents is essential. These entities are essentially agents who specifically handle the customs clearance aspect of the shipping process. Given how your belongings will be in the hands of customs clearance – you want them to be experienced and trustworthy.

Every shipment delay can turn out to be harmful to you, whether you are a trader or just an individual trying to send goods overseas. And customs brokers are there to help your shipment avoid latency and to clear the goods you want to have shipped from all ports and officials.

So, what kind of traits should you look for when searching for a reliable freight forwarder? Let’s take a look at some of the things you should pay attention to.

Experienced customs clearing agents should be able to handle every organizational challenge

One of the most significant traits of reliable customs clearance agents is the organizational skills they possess. Your customs brokers need to be organized and able to handle each and every piece of shipping documentation. All of the services they offer should be tackled efficiently and in an organized manner. You, as a client, will be the one who pays the ultimate price if anything during the shipping and clearance process goes wrong and not according to initial plans. Overseas freight forwarding is a serious endeavor and any disorganization may cause great problems. Your goods might even end up being shipped to the wrong country!

Experienced and reliable companies offer insurance for issues such as this one. However, there’s no need to waste any time or money on this tiresome actions. All you need to do is make sure your customs clearance agents don’t lack organizational skills and experience.

Before you hire a customs clearance agent:

Make sure they have a proper license

The customs broker you hire needs to be licensed and approved by the respective country’s government. Naturally, the set of policies, regulations, and rules that are necessary for someone to be a licensed customs clearance agent can vary from one country to another. If we take a look at the US Customs and Border Protection Agency, we can see that it has a set of strict rules and policies. So in order to make your freight forwarding process seamless, choosing an agent that has the necessary licenses.

Your customs clearance agent should go through the right training process

Just like in every industry, customs clearance requires trained professionals. In order to possess all the necessary knowledge and skills to perform their duties, customs brokers need to undergo proper training process. Being a reliable customs clearance agent means being familiar with all the rules and regulations. Also, they should be familiar with trade-related information and understand all the mandatory rules.

Your reliable agent should be updated with the most recent changes in freight forwarding policies

Whether you’ve been aware of this or not, freight forwarding and shipping policies can be really complicated. They are known to be able to cause many headaches to customs clearance agents. So, in order to ensure your shipment has a seamless clearance process, you need to hire agents who keep track of these rules and stay updated with the latest changes in freight forwarding policies and rules. A well-connected and experienced customs broker should have no issues with this requirement.

Whatever goods you need to have forwarded, your agent should have the necessary knowledge about it

No matter what line of industry you are a part of, your agent needs to have knowledge about it. In order to provide you with a professional piece of advice about your shipments and merchandise, your chosen customs clearance agent ought to be well-informed about the type of goods you are having forwarded. Since they have so many responsibilities when it comes to your merchandise, they need to know essential information about it.

There are certainly many benefits of hiring responsible, experienced and reliable customs clearance agents. But you need to be careful and choose the right one – your goods and the entire process of your shipment may become jeopardized if you make the wrong choice. So, try not to rush things. Take your time and make sure your agent has all the traits that mark a reliable customs broker. You won’t regret doing so.

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Jamie Lynch is a blogger and freelance content writer. His years of experience working with international companies such as Kokusai Express Japan have enabled him to share his knowledge about freight forwarding and international shipping.

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Archives, Global Trade Daily, Imports/Exports

Global Pepper Market Is Expected to Reach 840K Tonnes by 2025

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IndexBox has just published a new report: ‘World – Pepper – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global pepper market revenue in 2018 is estimated at $4.1B, a decrease of -1.7% y-o-y. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). In general, pepper consumption continues to indicate a strong expansion. The most prominent rate of growth was recorded in 2011 when the market value increased by 26% against the previous year. The global pepper consumption peaked at $4.2B in 2017, and then declined slightly in the following year.

Consumption By Country

The countries with the highest volumes of pepper consumption in 2018 were Viet Nam (166K tonnes), India (86K tonnes) and the U.S. (68K tonnes), with a combined 41% share of global consumption. These countries were followed by Bulgaria, Indonesia, China, Singapore, Malaysia, Sri Lanka, Germany, the United Arab Emirates and the UK, which together accounted for a further 33%.

In value terms, Viet Nam ($904M), India ($506M) and the U.S. ($374M) constituted the countries with the highest levels of market value in 2018, with a combined 43% share of the global market. These countries were followed by Indonesia, Singapore, China, Malaysia, Bulgaria, Sri Lanka, the United Arab Emirates, Germany and the UK, which together accounted for a further 33%.

The countries with the highest levels of pepper per capita consumption in 2018 were Bulgaria (7,641 kg per 1000 persons), Singapore (5,288 kg per 1000 persons) and Viet Nam (1,724 kg per 1000 persons).

Market Forecast 2019-2025

Driven by increasing demand for pepper worldwide, the market is expected to continue an upward consumption trend over the next seven-year period. Market performance is forecast to decelerate, expanding with an anticipated CAGR of +1.2% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 840K tonnes by the end of 2025.

Production 2007-2018

In 2018, the amount of pepper produced worldwide stood at 752K tonnes, jumping by 5.1% against the previous year. In general, the total output indicated a conspicuous expansion from 2007 to 2018: its volume increased at an average annual rate of +3.2% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, pepper production increased by +55.4% against 2012 indices. The pace of growth was the most pronounced in 2016 with an increase of 11% against the previous year. Over the period under review, global pepper production reached its maximum volume in 2018 and is likely to continue its growth in the immediate term. The general positive trend in terms of pepper output was largely conditioned by a tangible increase of the harvested area and a resilient expansion in yield figures.

In value terms, pepper production totaled $3.8B in 2018 estimated in export prices. Over the period under review, pepper production continues to indicate a remarkable increase. The pace of growth appeared the most rapid in 2011 when production volume increased by 47% against the previous year. The global pepper production peaked at $4.6B in 2016; however, from 2017 to 2018, production remained at a lower figure.

Production By Country

The country with the largest volume of pepper production was Viet Nam (273K tonnes), comprising approx. 36% of total production. Moreover, pepper production in Viet Nam exceeded the figures recorded by the world’s second-largest producer, Indonesia (88K tonnes), threefold. The third position in this ranking was occupied by Brazil (80K tonnes), with a 11% share.

In Viet Nam, pepper production expanded at an average annual rate of +8.1% over the period from 2007-2018. In the other countries, the average annual rates were as follows: Indonesia (+0.8% per year) and Brazil (+0.2% per year).

Harvested Area 2007-2018

In 2018, approx. 570K ha of pepper were harvested worldwide; stabilizing at the previous year. Overall, the pepper harvested area, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2009 when harvested area increased by 8% against the previous year. The global pepper harvested area peaked at 622K ha in 2007; however, from 2008 to 2018, harvested area failed to regain its momentum.

Yield 2007-2018

Global average pepper yield amounted to 1.3 tonne per ha in 2018, surging by 4.8% against the previous year. In general, the yield indicated prominent growth from 2007 to 2018: its figure increased at an average annual rate of +4.0% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, pepper yield increased by +53.3% against 2012 indices. The pace of growth appeared the most rapid in 2013 with an increase of 22% y-o-y. Over the period under review, the average pepper yield attained its maximum level in 2018 and is likely to continue its growth in the immediate term.

Exports 2007-2018

Global exports totaled 392K tonnes in 2018, picking up by 6.5% against the previous year. The total export volume increased at an average annual rate of +2.1% from 2007 to 2018; the trend pattern remained relatively stable, with somewhat noticeable fluctuations being recorded in certain years. The most prominent rate of growth was recorded in 2015 with an increase of 7.9% y-o-y. Over the period under review, global pepper exports attained their maximum at 398K tonnes in 2016; however, from 2017 to 2018, exports stood at a somewhat lower figure.

In value terms, pepper exports stood at $2B (IndexBox estimates) in 2018. Over the period under review, pepper exports continue to indicate strong growth. The growth pace was the most rapid in 2011 with an increase of 43% against the previous year. Over the period under review, global pepper exports reached their peak figure at $3.4B in 2015; however, from 2016 to 2018, exports failed to regain their momentum.

Exports by Country

Viet Nam represented the largest exporter of pepper in the world, with the volume of exports finishing at 142K tonnes, which was approx. 36% of total exports in 2018. It was distantly followed by Brazil (73K tonnes) and Indonesia (36K tonnes), together achieving a 28% share of total exports. India (17K tonnes), Germany (16K tonnes), Sri Lanka (15K tonnes), Malaysia (12K tonnes), Mexico (8.4K tonnes), the Netherlands (7.5K tonnes), France (6.8K tonnes) and the U.S. (6.8K tonnes) took a minor share of total exports.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by France, while the other global leaders experienced more modest paces of growth.

In value terms, Viet Nam ($743M) remains the largest pepper supplier worldwide, comprising 36% of global exports. The second position in the ranking was occupied by Brazil ($243M), with a 12% share of global exports. It was followed by Indonesia, with a 9.9% share.

In Viet Nam, pepper exports increased at an average annual rate of +9.6% over the period from 2007-2018. In the other countries, the average annual rates were as follows: Brazil (+7.3% per year) and Indonesia (+2.9% per year).

Export Prices by Country

In 2018, the average pepper export price amounted to $5,214 per tonne, going down by -14.2% against the previous year. Over the period under review, the pepper export price, however, continues to indicate remarkable growth. The most prominent rate of growth was recorded in 2011 an increase of 51% y-o-y. The global export price peaked at $8,660 per tonne in 2015; however, from 2016 to 2018, export prices remained at a lower figure.

Prices varied noticeably by the country of origin; the country with the highest price was the Netherlands ($8,605 per tonne), while Mexico ($2,602 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by India, while the other global leaders experienced more modest paces of growth.

Imports 2007-2018

Global imports totaled 414K tonnes in 2018, picking up by 8.6% against the previous year. The total import volume increased at an average annual rate of +2.9% over the period from 2007 to 2018; the trend pattern remained relatively stable, with somewhat noticeable fluctuations being observed in certain years. The most prominent rate of growth was recorded in 2013 when imports increased by 9.8% y-o-y. Over the period under review, global pepper imports attained their maximum in 2018 and are likely to see steady growth in the near future.

In value terms, pepper imports amounted to $2.1B (IndexBox estimates) in 2018. Overall, pepper imports continue to indicate a strong expansion. The pace of growth was the most pronounced in 2011 when imports increased by 41% year-to-year. The global imports peaked at $3.3B in 2015; however, from 2016 to 2018, imports stood at a somewhat lower figure.

Imports by Country

In 2018, the U.S. (75K tonnes), distantly followed by Viet Nam (35K tonnes), Germany (32K tonnes) and India (31K tonnes) were the major importers of pepper, together creating 42% of total imports. The following importers – the United Arab Emirates (16K tonnes), the UK (13K tonnes), France (11K tonnes), the Netherlands (11K tonnes), Spain (10K tonnes), Japan (9.5K tonnes), Pakistan (8.2K tonnes) and Russia (8K tonnes) – together made up 21% of total imports.

Imports into the U.S. increased at an average annual rate of +1.5% from 2007 to 2018. At the same time, Viet Nam (+21.5%), India (+8.8%), the UK (+5.4%), the United Arab Emirates (+3.9%), Spain (+2.9%), Russia (+2.6%) and France (+2.0%) displayed positive paces of growth. Moreover, Viet Nam emerged as the fastest-growing importer in the world, with a CAGR of +21.5% from 2007-2018. Pakistan, Japan and Germany experienced a relatively flat trend pattern. By contrast, the Netherlands (-2.7%) illustrated a downward trend over the same period. From 2007 to 2018, the share of Viet Nam, India and the U.S. increased by +7.5%, +4.5% and +2.7% percentage points, while the shares of the other countries remained relatively stable throughout the analyzed period.

In value terms, the U.S. ($391M) constitutes the largest market for imported pepper worldwide, comprising 18% of global imports. The second position in the ranking was occupied by Germany ($188M), with a 8.9% share of global imports. It was followed by India, with a 7.8% share.

In the U.S., pepper imports increased at an average annual rate of +5.5% over the period from 2007-2018. In the other countries, the average annual rates were as follows: Germany (+4.8% per year) and India (+14.1% per year).

Import Prices by Country

In 2018, the average pepper import price amounted to $5,122 per tonne, shrinking by -18.3% against the previous year. In general, the pepper import price, however, continues to indicate noticeable growth. The growth pace was the most rapid in 2011 an increase of 45% against the previous year. Over the period under review, the average import prices for pepper attained their peak figure at $8,550 per tonne in 2015; however, from 2016 to 2018, import prices remained at a lower figure.

Prices varied noticeably by the country of destination; the country with the highest price was the United Arab Emirates ($8,027 per tonne), while Viet Nam ($2,485 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by the United Arab Emirates, while the other global leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

SMEs
Archives, Global Trade Daily, Imports/Exports

HOW TO EXPORT TO THE UNITED STATES: 6 SIMPLE STEPS FOR SMEs

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According to the Organization for Economic Cooperation and Development, International Trade Statistics 1, participation in exports remains largely led by large enterprises (250 or more employees) in industrialized countries. In developing countries, the story is the same, and only a small percentage of small and medium sized businesses export at all. The World Trade Organization (WTO) reports that SMEs in developing countries make up roughly 45%, on average, of a country’s Gross Domestic Product (WTO, 2016), but SMEs’ exports represent on average 7.6 per cent of total manufacturing sales, compared to 14.1 per cent in the case of large manufacturing firms (WTO, 2016).

If you want your small or medium-sized business to get a piece of the export pie, according to the OECD Trade Committee, there are a number of challenges to be overcome. These include everything from limited access to credit, insufficient use of technology, and lack of export experience, to border controls. The most significant challenge posed, remains learning the ins and outs of getting your product from your country to foreign markets in a cost effective manner. These tips can help your small business become better equipped to enter the exciting world of exports.

The first stage in export planning is to investigate the market and identify your reasons for exporting to customers.
First, determine demand. You need to know where in the U.S. your product is needed. If you sell bathing suits, better export to Florida and California than to Nebraska or Alaska.

Second, you’ll need access to buyers. Start with researching buyers on the Internet, use your local U.S. Chamber of Commerce as a first resource, followed by the Economic Officer in the U.S. Embassy or Consulate in your country. Then, watch for upcoming trade shows where your goods could be featured.

Next, either start selling directly on your own ecommerce platform (secure payment and delivery systems should be integrated), or build a relationship with an international trade agent, whom you trust to help you navigate state and city markets, regulations, and opportunities for you to sell your goods in the U.S. , either to wholesale distributors, or directly to retailers. Improved logistics channels, eCommerce, and free trade agreements make that possible.

Third, find out what, if any, tariffs or exemptions exist for your goods. If there are no trade agreements between your country and the U.S., exempting your goods from tariffs, you’ll need the help of a U.S. licensed Customs Broker. A U.S. Customs Broker will be familiar with the Harmonized Tariff Schedule of the United States (“HTSUS”), and help you classify your goods and determine the tariffs you’ll have to pay to the U.S. Customs and Border Patrol, before your goods can enter the United States.

The National Customs Brokers and Freight Forwarders Association of America can easily provide brokers in the state or region you’re targeting.

Fourth, once you’ve got a better understanding of your profit margin to determine how you’ll sell your goods in the export market, you may wish to consider how to potentially mitigate any risks that can occur while your goods are being shipped, or once your goods arrive at their destination and are with the buyer(s). There are payment risks, damage or destruction of goods risks, documentary risks with customs, and many others.

You may have access to a good trade and customs attorney in the originating country, but he or she may not be thoroughly familiar with U.S. trade compliance requirements. In that case, you may benefit from consulting with a U.S. international trade lawyer to learn how they can help you mitigate risks in exporting by intervening with customs on your behalf, managing disputes through a properly drafted contract, and putting you in touch with relevant agents for information on U.S. trade insurance and compliance with government regulations.

In the U.S., generally, a phone or email consultation with a reputable lawyer would be free. If they want you to pay to talk with them for a few minutes about your problem and find out if they can help you, then hang up and call another lawyer.

Fifth, you need to build a relationship with a reputable freight forwarder or consolidator, who will help you decide: whether to ship by air or by sea; what documents are required for the country you are exporting to; how to pack your products for shipment; label them, and insure them. Normally, the freight forwarder will take care of it all, for a premium, but beware of INCOTERMS (regulations that define the responsibilities of buyers and sellers involved in commercial trade).

You must have at least a basic understanding of them to comprehend the shipping documents your freight forwarder will have you sign, and to protect your rights and limit liability.

Sixth, yes exporting is exciting, but it’s also risky doing business across oceans and continents with buyers you don’t know and may never see. To that end, there are many export resources in the originating country that companies, small and large, can benefit from. Usually Chambers of Commerce are a good starting point. There are associations of American Chambers of Commerce in every region of the world; just check the American Chamber of Commerce online directory for the specific one in your region or country.

Your own government’s resources can usually also offer invaluable information and global networks, including relevant contacts in the U.S. This is particularly helpful if you have a problem that can be fixed by your government seeking the intervention of commercial or economic officers at the local U.S. embassy in your country (keep in mind though that the Embassy is meant to assist U.S. citizens and residents, not foreigners).

Further, your local manufacturers association(s) may have members who have exported in the past, and can share their expertise. Lastly, commercial banks and local Export-Import Banks can guide you on how to leverage export financing, and minimize your financial exposure, when transacting business with foreign buyers.

Against this backdrop, you can reduce the external challenges SMEs face in trading, and better manage the uncertainty inherent in doing business internationally, all while making a healthy profit and expanding to new markets.

Magda Theodate is an international trade attorney and Director of Global Executive Trade Consulting Ltd. She works as a senior consultant for international development agencies in lower and middle income countries, resolving project execution challenges affecting trade, procurement and governance. To learn more, please visit: www.globalexecutivetrade.com

Goods
Archives, EU Trade, Global Trade Daily

Is Your Supply Chain Prepared for Potential U.S. Tariffs on EU Goods?

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Transatlantic tariffs came closer to reality in recent months after the United States Trade Representative (USTR) proposed tariffs on a list of products from the European Union (EU). 

Unfortunately, even if you’ve already gone through something similar with goods imported from China, the same strategy may not be effective for the tariffs on EU goods. This is due in large part to the types of proposed commodities from the EU.

The good news is there are things you can do today to adjust your import strategy to maintain compliance while insulating your company from the proposed tariffs.

Up to $25 billion worth of EU goods at stake

The USTR announcements in April and July proposed tariffs targeting up to $25 billion worth of goods. This includes items such as new aircraft and aircraft parts, foods ranging from seafood and meat to cheese and pasta, wine and whiskey, and even ceramics and cleaning chemicals. 

To date, the USTR has only provided a preliminary commodity list for the proposed U.S. tariffs on EU goods. No percentages have been announced, leaving many to wonder if the tariffs will be manageable—in the 5-10% range—or more substantial, like the 25% tariffs applied to China imports. 

On top of the tariffs, when the French Senate announced a 3% tax on revenue from digital services earned in France, President Trump threatened a counter-tax on French wine. But it’s unclear if this tax will come to fruition or fizzle out—especially since the USTR’s tariff list already includes many types of wine. 

5 key questions to insulate your supply chain

Looking for the best way to prepare your business from the potential tariff increases? Answering these key questions may help you adapt and insulate your company. 

-Do you have a plan to cover the costs? 

You may not be able to avoid paying the tariffs, but there are various strategies you may consider to help cover their costs. 

While not ideal, you could increase prices to end consumers. It may not be feasible to recover the entire cost of an added tariff, but you can at least offset a small portion of the tariff this way.

You can also adjust the cost of the goods with suppliers and manufacturers to cover a portion of the tariff. Just remember: pricing changes still need to meet the valuation regulations with U.S. Customs and Border Protection (CBP). 

-Will you need to increase your customs bond? 

The smallest customs bond an importer can hold is $50,000. That used to be enough for many importers to cover generally 10% of the duties and taxes you expect to pay CBP. 

Unfortunately, as many importers from China are learning, a 25% tariff on products can quickly exceed your bond amount. And bond insufficiency can shut down all your imports while resulting in delays and added expenses. 

To help avoid bond insufficiency, consider any increased duty amounts in advance of your next bond renewal period. And don’t wait to do this until the last minute, because raising your customs bond with your surety company can take up to four weeks. 

-Do you re-export goods brought into the U.S.? 

Duty drawback programs can’t be used by every importer. But if you can take advantage of them, they can result in big savings for your company.

In fact, you can get back 99% of certain import duties, taxes, and fees on imported goods that you re-export out of the U.S. Just be aware that you still need to pay the duties up front. And you might need to wait up to two years to get your refund. 

-Are your product classifications current and accurate?

With potential tariffs looming, consider reviewing your product classifications and make sure they’re accurate. If you find an issue, discuss it with your broker or customs counsel to discuss how you can properly rectify the issue, and avoid penalties from doing it incorrectly.

And while we’re on the topic of product classifications, never change them to evade tariffs. CBP will be on the lookout for this kind of activity, and the penalties for noncompliance can be steep.

-Do you have the support you need?

Changing your customs brokers may not sound appealing, but ensuring they provide all the services you need to stay compliant should be your top priority when working with them.

Your provider should help make sure you pay the appropriate duty rates for your products. And they should have people and services available globally to support your freight wherever it is located throughout the world. 

Also, consider simplifying your support by working with one provider that offers not only customs brokerage and trade compliance services but also global ocean and air freight logistics services. 

If you only employ one strategy…

Discuss your import strategy with your customs attorney or customs compliance expert. Bringing in specialized expertise is the most effective way to analyze how these tariffs could affect your products, your supply chain, and your business. 

If you don’t yet have a customs broker who can meet all your needs in today’s changing environment, consider C.H. Robinson’s customs compliance services. With over 100 licensed customs brokers in North America, and a Trusted Advisor® approach, our experts are ready to help.

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Ben Bidwell serves as the Director of U.S. Customs at  C.H. Robinson

USMCA
Archives, Global Trade Daily, International Trade

How a Footnote in the USMCA Undermines Economic Liberty

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House Democrats are holding up ratification of the U.S.-Mexico-Canada Agreement (USMCA) until U.S. Trade Representative Robert Lighthizer agrees to make some changes. While a number of the big concerns about the new NAFTA, such as enforcement, biologic drugs, and the implementation of Mexico’s labor laws have received a lot of attention, there is another issue that has flown under the radar, perhaps in part because it’s buried in a footnote.

Chapter 7 of the USMCA, “Customs Administration and Trade Facilitation,” includes a section on “Express Shipments.” These are goods of low or negligible value that are shipped by courier or express mail services in large volume. Think about that pair of shoes you just ordered from France. That’s an express shipment.

Because there are so many of these packages coming through customs facilities, and it’s such a burden to process them, most countries have what is called a de minimis threshold, that is a set value below which imported goods are both sales tax and duty free. The United States has the highest de minimis threshold in the world, allowing individuals and businesses to make purchases from abroad up to $800 with no duty or tax collected by customs.

As Gary Hufbauer, Euijin Jung, and Lucy Lu explain, high de minimis thresholds are not only good for consumers, who do not have to deal with the complexity and time delays in processing customs duties and sales tax on the things they buy, but also for small businesses, because of the importance of intermediate inputs, as well as cross-border sales for their profits.

As part of the USMCA, Canada and Mexico both raised their de minimis thresholds, which not only helps small businesses in the United States but also consumers in both countries as well. Canada raised its de minimis threshold to $150 CAD from its original $20 CAD limit, and sales tax cannot be collected until the value of the product reaches at least $40 CAD. Mexico increased its de minimis from $50 USD to $100 USD, with tax free de minimis on $50 USD.

While the U.S. did not alter its de minimis threshold in USMCA, there is a curious footnote in Chapter 7 that should be cause for concern. It reads:

Notwithstanding the amounts set out under this subparagraph, a Party may impose a reciprocal amount that is lower for shipments from another Party if the amount provided for under that other Party’s law is lower than that of the Party.

Now we are all well aware of this administration’s distorted concept of reciprocity, and they seem to be applying it here as well. What this footnote suggests is that the U.S. could potentially lower its de minimis threshold to match what Canada or Mexico have agreed to. To put this in perspective, in 2016, the United States increased its de minimis level to $800 from $200. This footnote would allow the de minimis to drop even below the 2016 limit. This is not only an attack on economic liberty for American citizens, but it would be an enormous step backward on a policy where the United States has been a leader for liberalization.

Back in June, Robert Lighthizer was directly asked about this footnote by multiple members of the House Ways and Means Committee during a hearing on the 2019 trade policy agenda. While a number of excellent questions were raised, I highlight two below. First, Rep. David Schweikert (R-AZ), noting bipartisan support for the current de minimis threshold, stated:

In 2016, Congress raised the U.S. de minimis threshold to $800 in the bipartisan Trade Facilitation and Trade Enforcement Act. This change enjoys wide bipartisan support in Congress and throughout the e-commerce landscape. The current threshold benefits millions of American small businesses, across all sectors, including manufacturers, who rely on low-value inputs for the production of U.S. exports. As a result, American small businesses now enjoy more rapid border clearance, reduced complexities and red tape, and lower logistics costs, while American consumers benefit through faster, less expensive access to a wider range of goods.

Given the benefits of the current de minimis threshold to American small businesses and the U.S. economy as a whole, and that Congress legislated on the U.S. de minimis level only a few years ago, I remain extremely concerned over the Draft Statement of Administrative Action (SAA) on the U.S.- Mexico-Canada Agreement (USMCA) transmitted to Congress on May 30. This draft SAA includes language suggesting that you may seek changes to the U.S. de minimisthreshold through the USMCA implementing bill. As you know, last December, Rep. Kind and I led a bipartisan letter urging you not to seek to lower the U.S. de minimis threshold. My position has not changed.

I strongly oppose including any language in the USMCA implementing bill that would lower the U.S. de minimis level or that would delegate this authority to the Executive Branch. As you work with Congress to finalize the USMCA implementing legislation, will you commit to not seeking authority to lower the U.S. de minimis threshold?

Rep. Daniel Kildee (D-MI) also emphasized how this change would undermine Congress’s authority to regulate commerce:

In 2016, Congress raised the U.S. de minimis threshold to $800 in the bipartisan Trade Facilitation and Trade Enforcement Act. The current threshold benefits millions of American small businesses, across all sectors, including manufacturers, who rely on low-value inputs for the production of U.S. exports. As a result, American small businesses now enjoy more rapid border clearance, reduced complexities and red tape, and lower logistics costs, while American consumers benefit through faster, less expensive access to a wider range of goods.

Given the benefits of the current de minimis threshold to American small businesses and the U.S. economy as a whole, I was curious to see the Draft Statement of Administrative Action on the U.S. Mexico Canada (USMCA) includes language that you may seek authority for the Executive Branch to set U.S. de minimis thresholds. Congress must maintain its Constitutional authority to set tariffs – including de minimis thresholds.

As you work with Congress to finalize the USMCA implementing legislation, can you commit not to seek the derogation or authority to derogate from the current U.S. de minimis threshold?

Amb. Lighthizer’s comments to all questions on the de minimis threshold remained the same:

As noted in the Administration’s submission to Congress on changes to existing law and the draft Statement of Administrative Action, we identified this as an issue for consultation with the Committee on Ways and Means of the House and the Committee on Finance of the Senate. These consultations are underway. I look forward to continuing those conversations with you and other Members on this important issue.

Congress should continue to press the administration for the removal of this footnote from the USMCA. It may seem like a small part of the broader USMCA debate, but Congress should not be fooled. This is representative of the broader attempts by the executive branch under this administration to expand its power into areas where the Constitution gives Congress express authority. Congress should not give up its authority to regulate foreign commerce, and should actively push to rein in the abuses of the executive in trade policy. By pushing for this on de minimis, we can get one step closer to ensuring that the Trump administration’s trade policy remains as its own small footnote in the history of U.S. trade policy.

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Inu Manak is a visiting scholar at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.