International trade compliance refers to the processes through which goods are imported and exported between different countries while adhering to their own legal rules, regulations, and specifications, which are set up by HMRC.
Trade compliance involves many aspects of international trade, all of which call for specialised knowledge and comprehension.
It’s critical to recognise that laws and other specifications can vary for different goods categories and different countries. Businesses must abide by the particular standards and regulations that each country has for economic, ethical, quality, and consumer protection.
This article discusses the importance of trade compliance and its key elements to consider in international trade:
Importance of international trade compliance
Trade compliance is important because it guarantees uniform trade practices across borders. All businesses have a set of legal responsibilities to safeguard themselves and their customers. Furthermore, it ensures that ethical, environmental, quality and product standards are all same.
It ensures that product standards and criteria for pricing, quality, environmental, and ethical considerations are the same, creating a safe and fair global supply chain.
Businesses can get a competitive edge by using trade compliance software; goods that comply with the law are valued more highly than those that do not.
There are further ways that trade compliance lowers risk for your trading business:
- It protects the reputation of your employees and business by promoting fair and lawful trade.
- It lowers the possibility of delays, penalties and other financial losses.
- It ensures client satisfaction.
- It keeps you safe from customs investigations and delays, saving a significant amount of time.
Risks of not adhering to international trade compliance standards
Trading bad practice is the term used to describe when businesses violate import/export regulations. Usually, this happens when they are poorly managed and out of compliance with national laws and requirements. Failure to maintain accurate compliance with global standards can have a number of negative effects on a business’s operations.
Among these risks are:
- Penalties and financial sanctions
- Delays in shipments
- Lost goods
- Over taxation
- Holding customs
Key elements of international trade compliance
The following elements are essential to ensure compliance with international trade regulations:
Tariff classification
Tariff classification is compulsory to comply with the trading regulations to ensure customs compliance. The World Customs Organisation (WCO) maintains a Harmonised System, a nomenclature used for classifying goods. It uses a 6-digit number to categorise approximately 5,000 commodity groups.
Why tariff classification is important:
- Legal responsibilities: Traders must accurately categorise their items to calculate the proper tariffs and taxes.
- Regulatory compliance: It ensures licences, permits, and other documentation requirements are fulfilled.
- Penalties for non-compliance: Improper categorisation may result in product seizures, fines, longer shipment times, and more inspections.
Goods valuation
Goods valuation is necessary to compute import VAT and customs charges. The goal of this approach is to give import commodities a single, uniform, and fair customs value system.
Customs administrations use the WTO Customs Assessment Agreement to determine the value of imported commodities. The World Trade Organisation (WTO) has authorised six valuation procedures:
Methods of Valuation:
- Transaction value
- Value of transaction for identical goods
- Value of transaction for similar items
- Fall-back method
- Computed method
- Deductive method
The significance of valuation
- Impact on cost: Has a direct impact on the price of imported goods.
- Duty calculation: Guarantees that the appropriate duty rates are used.
- Compliance: Prevents undervaluation, which runs the danger of causing shipment delays and fines, and overvaluation, which raises duty expenses.
Rules of origin
It determines the economic nationality of goods, which can have an impact on tariff rates and the availability of preferential treatment under trade agreements. These regulations are applied to ascertain the origins of goods based on national laws or international agreements, according to the WCO.
Categories of rules of origin:
- Preferential rules: Applicable to products that meet trade agreement requirements for lower duty rates.
- Non-preferential rules: Control products not covered by trade agreements; they have an effect on trade restrictions and customs processes.
Importance of rules of origin:
- Duty rates: Shows whether products are eligible for reduced duty rates.
- Trade restrictions: Assess if trade restrictions, special permit requirements, and anti-dumping penalties apply.
- Labelling specifications: Influences laws governing product branding and labelling.
- Statistical accuracy: Guarantees precise trade data.
Customs management
Customs management is the process of ensuring that trade laws are followed to speed up product processing. Integrated customs management systems support import/export procedures and improve legal compliance and cooperation throughout customs operations.
Parts of the customs management:
- Customs handling: Effective management of customs procedures.
- Moving and displaying: Smooth goods transportation.
- Documentation and classification: Electronic intelligent document processing and precise classification.
Author Details:
Name: John Hall
Designation: Customs Specialist
About: John Hall, a customs industry expert, has 15 years of experience working with customs operations. Having been an integral member of iCustoms since its inception, he possesses extensive knowledge and expertise in both the technical and regulatory domains.
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