customs classification and valuation
Expert-defined terms from the Professional Certificate in Global Trade Compliance Training and Development course at London School of Business and Administration. Free to read, free to share, paired with a globally recognised certification pathway.
Customs Classification #
Customs Classification
Customs classification is the process of assigning a specific code to a product… #
This code is used to determine the customs duties, taxes, and regulations that apply to the product when imported or exported. The classification system used worldwide is the Harmonized System (HS), which is a standardized system of names and numbers used to classify products for customs purposes. The HS system is maintained by the World Customs Organization (WCO) and is implemented by most countries around the world.
Valuation #
Valuation
Valuation is the process of determining the value of goods for customs purposes #
The value of imported goods is used to calculate customs duties, taxes, and fees. There are different methods of valuation that can be used, such as the transaction value method, the value of identical goods method, the deductive value method, and the computed value method. The valuation of goods is based on the price paid or payable for the goods, adjusted for certain factors such as transportation and insurance costs.
Transaction Value Method #
Transaction Value Method
The transaction value method is the primary method of valuation used for customs… #
It is based on the price actually paid or payable for the goods when sold for export to the country of importation. The transaction value includes all payments made by the buyer to the seller, as well as any additional costs incurred by the buyer, such as commissions, packing costs, and royalties.
Value of Identical Goods Method #
Value of Identical Goods Method
The value of identical goods method is used when the transaction value method ca… #
This method involves determining the value of the imported goods based on the selling price of identical goods that are sold for export at or about the same time as the goods being valued.
Deductive Value Method #
Deductive Value Method
The deductive value method is used when the value of the imported goods cannot b… #
This method involves starting with the selling price of the goods in the country of importation and deducting certain costs, such as transportation and insurance, to arrive at the customs value of the goods.
Computed Value Method #
Computed Value Method
The computed value method is used when the value of the imported goods cannot be… #
This method involves calculating the value of the goods based on the cost of production, including materials, labor, and overhead, plus an amount for profit and general expenses.
Customs Duty #
Customs Duty
Customs duty is a tax imposed by the government on goods that are imported or ex… #
The rate of customs duty is based on the classification and value of the goods being imported or exported. Customs duties are used to protect domestic industries, regulate trade, and generate revenue for the government.
Import Duty #
Import Duty
Import duty is a type of customs duty that is imposed on goods that are imported… #
The rate of import duty is determined by the classification and value of the imported goods. Import duties are used to control the flow of goods into a country, protect domestic industries, and generate revenue for the government.
Export Duty #
Export Duty
Export duty is a type of customs duty that is imposed on goods that are exported… #
The rate of export duty is determined by the classification and value of the exported goods. Export duties are used to regulate the export of certain goods, protect domestic resources, and generate revenue for the government.
Ad Valorem Duty #
Ad Valorem Duty
An ad valorem duty is a type of customs duty that is calculated as a percentage… #
The rate of an ad valorem duty is based on the customs value of the goods, which is determined through the valuation process. Ad valorem duties are commonly used to impose taxes on luxury goods or goods with fluctuating prices.
Specific Duty #
Specific Duty
A specific duty is a type of customs duty that is imposed as a fixed amount per… #
The rate of a specific duty is not based on the value of the goods but on a specific measurement, such as kilograms, liters, or pieces. Specific duties are commonly used for goods that are easily quantifiable, such as fuel, alcohol, or tobacco.
Customs Broker #
Customs Broker
A customs broker is a licensed professional who assists importers and exporters… #
Customs brokers are knowledgeable about customs regulations, documentation requirements, and tariff classifications. They help their clients navigate the complexities of international trade and ensure compliance with customs laws and regulations.
Harmonized System (HS) #
Harmonized System (HS)
The Harmonized System (HS) is an internationally standardized system of names an… #
The HS system is maintained by the World Customs Organization (WCO) and is implemented by most countries around the world. The HS system is organized into chapters, headings, and subheadings, with each product being assigned a specific code based on its description, composition, and intended use.
World Customs Organization (WCO) #
World Customs Organization (WCO)
The World Customs Organization (WCO) is an intergovernmental organization that i… #
The WCO develops and maintains the Harmonized System (HS) for classifying products, as well as other international conventions and agreements related to customs procedures. The WCO works to facilitate legitimate trade, protect society and the environment, and ensure the safety and security of the global supply chain.
Country of Origin #
Country of Origin
The country of origin is the country where a product was manufactured, produced,… #
The country of origin is an important factor in determining the customs duties, taxes, and regulations that apply to a product when imported into another country. The rules for determining the country of origin vary by country and can be based on criteria such as the substantial transformation of the product or the percentage of local content.
Rules of Origin #
Rules of Origin
Rules of origin are the criteria used to determine the country of origin of a pr… #
Rules of origin are used to ensure that products are classified correctly and that the appropriate customs duties, taxes, and regulations are applied. Rules of origin can be based on factors such as the location of production, the percentage of local content, or the value added in a specific country.
Free Trade Agreement (FTA) #
Free Trade Agreement (FTA)
A Free Trade Agreement (FTA) is a treaty between two or more countries that elim… #
FTAs are designed to promote economic growth, increase trade, and create new business opportunities. FTAs often include provisions on customs procedures, rules of origin, and dispute resolution mechanisms.
Most Favored Nation (MFN) Treatment #
Most Favored Nation (MFN) Treatment
Most Favored Nation (MFN) treatment is a principle of international trade that r… #
MFN treatment is based on the idea that all countries should be treated fairly and without discrimination in trade. MFN treatment is a fundamental principle of the World Trade Organization (WTO) and is included in many trade agreements.
Customs Compliance #
Customs Compliance
Customs compliance refers to the adherence to customs laws, regulations, and pro… #
Customs compliance involves accurately classifying products, valuing goods, completing documentation, and paying the appropriate customs duties and taxes. Non-compliance with customs regulations can result in penalties, fines, delays, and other consequences that can impact a company's ability to conduct international trade.
Risk Management #
Risk Management
Risk management is the process of identifying, assessing, and mitigating risks t… #
Risk management in global trade involves evaluating the potential risks associated with customs compliance, supply chain security, financial transactions, and geopolitical factors. By implementing risk management strategies, companies can reduce the likelihood of disruptions, losses, and compliance issues in their international trade activities.
Authorized Economic Operator (AEO) #
Authorized Economic Operator (AEO)
An Authorized Economic Operator (AEO) is a company that has been certified by cu… #
AEO status is granted to companies that have demonstrated a high level of customs compliance, financial solvency, and security measures in their supply chain operations. AEOs receive benefits such as expedited customs clearance, reduced inspections, and enhanced trade facilitation.
Customs Audit #
Customs Audit
A customs audit is an examination of a company's customs compliance and record #
keeping practices by customs authorities. Customs audits are conducted to verify that importers and exporters are complying with customs regulations, accurately reporting information, and paying the correct customs duties and taxes. Customs audits can be conducted randomly, in response to a specific issue, or as part of a company's participation in a customs compliance program.
Customs Brokerage #
Customs Brokerage
Customs brokerage is the service provided by customs brokers to assist companies… #
Customs brokers help importers and exporters navigate the complexities of international trade by ensuring that their shipments comply with customs regulations, documentation requirements, and tariff classifications. Customs brokerage services include preparing and submitting customs declarations, coordinating with customs authorities, and facilitating the release of goods.
Importer of Record (IOR) #
Importer of Record (IOR)
The Importer of Record (IOR) is the party responsible for ensuring that imported… #
The IOR is legally liable for the accuracy of customs declarations, the payment of customs duties, and the compliance with customs laws. The IOR can be the buyer, the consignee, or a customs broker acting on behalf of the importer.
Export Control #
Export Control
Export control refers to the regulations and procedures that govern the export o… #
Export controls are implemented to protect national security, prevent the proliferation of weapons of mass destruction, and promote foreign policy objectives. Export controls can include export licensing requirements, trade restrictions, and sanctions against certain countries or individuals.
Export License #
Export License
An export license is a government #
issued document that authorizes the export of specific goods, technologies, or services from one country to another. Export licenses are required for certain controlled items that have military, dual-use, or strategic significance. Export licenses are used to ensure compliance with export control regulations and to prevent the unauthorized transfer of sensitive technologies.
Export Compliance #
Export Compliance
Export compliance refers to the adherence to export control regulations and proc… #
Export compliance involves determining the classification of goods, obtaining the necessary export licenses, screening parties to the transaction, and maintaining accurate export documentation. Non-compliance with export regulations can result in penalties, fines, and other consequences that can impact a company's ability to export.
Denied Party Screening #
Denied Party Screening
Denied party screening is the process of screening individuals, companies, and e… #
Denied party screening is used to prevent companies from engaging in business with individuals or entities that are subject to trade restrictions, sanctions, or embargoes. Denied party screening helps companies comply with export control regulations and avoid penalties for dealing with prohibited parties.
Sanctions #
Sanctions
Sanctions are measures imposed by governments to restrict or prohibit trade, fin… #
Sanctions are used to promote national security, foreign policy objectives, and human rights concerns. Sanctions can include trade embargoes, asset freezes, travel bans, and restrictions on imports and exports. Companies must comply with sanctions regulations to avoid legal and financial consequences.
Incoterms #
Incoterms
Incoterms are international commercial terms that define the rights and responsi… #
Incoterms specify the delivery terms, shipping responsibilities, and division of costs between the parties involved in a transaction. Incoterms provide a standardized set of rules that help companies avoid misunderstandings and disputes in their international trade activities.
Free Carrier (FCA) #
Free Carrier (FCA)
Free Carrier (FCA) is an Incoterm that specifies that the seller is responsible… #
Under FCA terms, the seller is responsible for export clearance and loading the goods onto the carrier's vehicle. The buyer is responsible for the cost and risk of transporting the goods from the named place of shipment to the final destination.
Cost and Freight (CFR) #
Cost and Freight (CFR)
Cost and Freight (CFR) is an Incoterm that specifies that the seller is responsi… #
Under CFR terms, the seller is responsible for export clearance and loading the goods onto the vessel. The buyer is responsible for the risk of loss or damage to the goods once they are loaded onto the vessel.
Free Alongside Ship (FAS) #
Free Alongside Ship (FAS)
Free Alongside Ship (FAS) is an Incoterm that specifies that the seller is respo… #
Under FAS terms, the seller is responsible for export clearance and loading the goods onto the dock next to the vessel. The buyer is responsible for the cost and risk of loading the goods onto the vessel and transporting them to the final destination.
Free on Board (FOB) #
Free on Board (FOB)
Free on Board (FOB) is an Incoterm that specifies that the seller is responsible… #
Under FOB terms, the seller is responsible for export clearance and loading the goods onto the vessel. The buyer is responsible for the cost and risk of transporting the goods from the named port of shipment to the final destination.
Customs Seizure #
Customs Seizure
A customs seizure is the action taken by customs authorities to confiscate goods… #
Customs seizures can occur when goods are undervalued, misclassified, prohibited, or counterfeit. Customs authorities have the legal right to seize and forfeit goods that are deemed to be non-compliant with customs regulations. Importers and exporters must be aware of customs laws to avoid customs seizures and penalties.
Customs Penalties #
Customs Penalties
Customs penalties are fines or sanctions imposed by customs authorities for non #
compliance with customs laws, regulations, or procedures. Customs penalties can be issued for errors in customs declarations, undeclared goods, incorrect valuation, or late submission of documentation. Customs penalties are intended to enforce compliance with customs regulations and deter fraudulent or illegal activities in international trade. Importers and exporters can appeal customs penalties or seek mitigation based on the circumstances of the violation.
Customs Tariff #
Customs Tariff
A customs tariff is a schedule of duties, taxes, and fees that are imposed on im… #
Customs tariffs are based on the classification and value of the goods and are used to regulate trade, protect domestic industries, and generate revenue for the government. Customs tariffs can vary by country and by product, with different rates applied to different categories of goods.
Temporary Importation #
Temporary Importation
Temporary importation is the process of bringing goods into a country for a spec… #
Temporary importation is allowed for goods that are intended for a specific purpose, such as display at a trade show, repair or maintenance, or testing. Temporary importation requires the posting of a security deposit or bond to ensure that the goods will be re-exported within the specified time frame.
Bonded Warehouse #
Bonded Warehouse
A bonded warehouse is a facility authorized by customs authorities for the stora… #
Goods stored in a bonded warehouse are considered to be in transit and can be stored, manipulated, or repackaged without customs intervention. Bonded warehouses are used to defer the payment of customs duties, facilitate international trade, and streamline customs procedures for importers and exporters.
Drawback #
Drawback
Drawback is a customs procedure that allows for the refund of customs duties, ta… #
Drawback is intended to promote exports, stimulate economic activity, and encourage international trade. Drawback claims must meet specific criteria and documentation requirements to qualify for a refund of customs duties.
Customs Valuation Agreement #
Customs Valuation Agreement
The Customs Valuation Agreement is an international agreement established by the… #
The Customs Valuation Agreement provides guidelines for customs authorities to ensure consistency, transparency, and predictability in the valuation of goods for customs purposes. The agreement is based on the principle that the customs value of imported goods should be based on the transaction value whenever possible.
Reconciliation #
Reconciliation
Reconciliation is a customs procedure that allows importers to adjust the declar… #
Reconciliation is used to correct errors or discrepancies in the customs value, classification, or origin of imported goods. Importers must submit a reconciliation declaration within a specified time frame to reconcile any differences in the declared information and pay any additional customs duties or taxes owed.
Customs Compliance Program #
Customs Compliance Program
A customs compliance program is a set of policies, procedures, and controls impl… #
Customs compliance programs are designed to prevent errors, fraud, and non-compliance in international trade activities. Companies that have robust customs compliance programs in place are better equipped to navigate the complexities of customs regulations, minimize risk, and maintain a good relationship with customs authorities.
Customs Brokerage Software #
Customs Brokerage Software
Customs brokerage software is a technology solution that helps customs brokers a… #
Customs brokerage software can assist with tasks such as classification, valuation, documentation, compliance checks, and communication with customs authorities. By using customs brokerage software, companies can improve efficiency, accuracy, and compliance in their international trade operations.
Customs Declaration #
Customs Declaration
A customs declaration is a document that provides information about the imported… #
Customs declarations are required by customs authorities to assess customs duties, taxes, and regulations on imported and exported goods. Importers and exporters must accurately complete customs declarations to ensure compliance with customs laws and facilitate the clearance of goods through customs.
Customs Clearance #
Customs Clearance
Customs clearance is the process of completing the necessary customs procedures… #
Customs clearance involves submitting customs declarations, paying customs duties and taxes, providing documentation, and complying with customs regulations. Customs clearance can be done by the importer, exporter, or a customs broker acting on behalf of the parties involved in the transaction.
Customs Documentation #
Customs Documentation
Customs documentation is the paperwork required by customs authorities to accomp… #
Customs documentation includes documents such as commercial invoices, packing lists, bills of lading, certificates of origin, and customs declarations. Accurate and complete customs documentation is essential for customs clearance, compliance with customs regulations, and the smooth flow of goods through the international supply chain.
Customs Brokerage Fee #
Customs Brokerage Fee
A customs brokerage fee is a fee charged by a customs broker for their services… #
Customs brokerage