Unit 3: Tariffs and Duties

AF_CM02_ International Trade Procedures

Unit 3: Tariffs and duties

In this last unit, you are going to find the information about the customs fees that have to be cleared at import and how to calculate them, as well as other obligations; documents and restrictions that you have to take into account, when exporting or importing goods to foreign countries.

The objectives you are expected to achieve are:

1. Search information about exchange market’s currencies.
2. Find out more on tariff and duties, import procedures in foreign countries and other important documents such as the Certificate of Origen, …

1.1International exchange market's currencies

In whatever international trade transaction, where you are trading with a foreign country, you have to agree in the currency in which will be held de transaction. This issue is really important because of the fluctuation of the different currencies over the countries and time. A single transaction could change in a high degree because of the appreciation in value or depreciation.

However, in intra-Community trade, this issue is not as important as foreign-wise, because more than the 65% of the countries from the EU have adopted the Euro € as the official currency. So, in most occasions, it's no need to exchange currencies or to foresee any fluctuation that could affect the profitin commercial transactions.

Here I give you a link to know every currency of the EU member states, in order to prepare the negotiation stage, before an intra-Community sale or a purchase.

For example, when starting negotiations, fixing he transaction currency is crucial to start to work on more specific trade conditions; for example which of the parts (seller or buyer) covers the expenses of transport, insurance, …

/ EU members and currencies

There are a lot of websites where the currencies rate exchanges are published and permanently up-dated. When applying a rate exchange in a transaction the date of the transaction marks the rate that it has to take into an account.

This is a website where you can look up this information:

/ Exchange currency rates

Ex: Imagine you are the buyer of an importation from US, and the commercial invoice date is today, and the seller issues the commercial invoice in UD Dollar (USD), you are affected by the exchange rate fluctuation, so the transaction’s cost would be less or more damaging or beneficial for you depending on that item. Furthermore, when the goods arrive to EU territory to be cleared at customs, you have to pay the customs duties in Euro, so you have to change the “Customs Value”in DV-1 document of your goods from USD to EUR in a certain exchange rate, and the one to apply is the official "seller exchange rate" corresponding to the penultimate Wednesday of each month and published in the BOE (national public gazette); such rate exchange is the one to be applied throughout the following month.

Now, the numerical example for the previous transaction:

The total amount of the invoice and also de customs value you have to declare is 2.000 USD. You will pay to the US seller 2.000 USD but at Spanish customs, the duties have to be paid in EUR.

• You start the conversion in this way:

1€ = 1, 2219 USD; this means that with each Euro you have, you will be given 1,2219 US Dollars.

2.000 USD = ? €

This maths operation is done in the following way: 2000 / 1, 2219 = 1.636,80 €

So, the result indicates that you have to declare at customs 1.636,80 as your goods value, to apply the customs rates to determine the importation fees to pay.

• If you have to do the contrary transaction:

You have USD data, for example the same amount:

1.636,80 € you will have to multiply 1, 2219 to obtain the amount in USD:

1.636,80 x 1, 2219 = 2.000 USD.

After all this content, it will be really useful to practise a bit more. Here you have an exercise to practise currency exchange.

A1. Practising currency exchange

In this activity you have to convert each amount to the correspondent currency.

You can use the indicated website or another one you know.

European (EUR) / Exchange / Foreign currency
3.000 € / 1€ = 137,48JPY (Japanese Yen)
1€ = 0,7865 GBP (British Pound) / 11.797,50 GBP
10.0000 € / 1€ = 2,6957 TRY (Turkish Lira)
1€ = 3,0909 BRL (Brazilian Real) / 618.180 BRL
TO KNOW MORE
Here you are an article and a video that deals with the appreciation, devaluation and bank rate of interests in EU and other non-European State Members as well as non-Eurozone members; it’s thought to be for commercial purposes.
/ Currency in war in Europe

1.2Tariffs on customs duties

In international trade, in most countries, the duties to pay at customs are only due to importation transactions. Thus, actually, it isn’t usual to come across with taxes at exportation. In EU there aren’t any taxes at export; when goods are selling from a European member state to a foreign one, duties at customs are only to be paid when entering goods from third counties.

The customs fees are trade expenses important to be considered when buying goods or services to third countries. Depending on the country you are trading, these rates are higher, lower or even zero, in the two last situations because of any free trade agreement among the countries.

There are a lot of trade agreements between countries or regional grouping, for example, NAFTA (Canada, EUA and Mexico), ACP (African, Caribbean and Pacific countries) … The EU has signed several trade agreements with countries or regional grouping around the world.

Here you have a link to see some of these current agreements.

/ EU free trade agreements

After this explanation, we go on with calculating tariffs.

Customs tariffs:

The European commission webpage publishes the Taric codification, where, in addition to all the Taric code and the correspondent goods characteristics, there are the customs fees to apply.

It’s the same that we use to codify goods in unit 1.

/ EU Taric: Customs tariffs at importation

First, you need to know from which country the goods you have imported are coming from, that maybe is not the same country of origin, it is the country that is selling the goods to your country.

Then, you need to know that there are different kinds of duties depending on the form to calculate them, the most common are these:

• Ad-valorem duties: When you have to apply a percentage to the customs value of the goods. For example, the goods value is 100.000 €, and the tariff 4%; the duty you have to pay is 4000€.
• Specific duties: When the fees payable depends on the amount of goods you are importing (kg, units, litters …). For example, the tariff indicates 20 € /kg. and the good’s weigh is 100 kg.; the duty you have to pay is 2000 €.
• Combined: Where you have an ad-valorem plus a specific duty, in this situation, you have to calculate both but separately and after it, to add both results.

The best way to learn how to do the whole process is with a real example.

Example: You are a European enterprise and you have bought cotton sewing thread to put up for retail sale, from China, which Taric code is 5204.20.00.00, and the total amount of the transaction in Euros is 9.000.000 €; this would be the Customs value you declare in SAD. So, the next step is to clear goods at import, at customs, this is to calculate duties fees.

First you look up in the European Taric web page, with the Taric code of the goods, which tariff has to be applied. This following link shows you the results of the search:

/ Duties for 4205.20.00.00

You will be shown and image like this print screen:

If the country of importation isn’t in the list of the countries with free trade agreement, you have to apply the tariff called “Erga omnes”, this means for the rest of the countries.

You can see that is an ad-valorem tariff, so then, with the goods value you apply this 5%.

The result is that you have to pay as customs duties, the amount of 450.000€.

HIGHLIGHTS

In all this process of searching for the exact tariff of the goods, is very important to have codified the goods in the correct way, because if not, you are going to have problems to lift the goods at customs. There is a system that permits you to now the correct codification; this is to ask for binding tariff information to EU with the corresponding form.

A2. Calculating fees to clear goods at customs:

You are now ready to start calculating customs duties in your own. Here you have 5 transactions, where you have to guess how much are going to be the customs duties.

The goods and the importation conditions are:

• 1000 kg. of high quality beef and veal imported from USvalued at 5.000€ (0202.20.90.10).
• 1.000 l. of vodka (45% vol) imported from Russia, valued at 4.000 € (2208.60.91.00)
• 1.000 kg. of cocoa powder imported from South Africa, valued at 7.000 € (1806.10.15.00)
• 1.000 kg. of kiwifruit Gold, imported from South Korea, valued at 1.500 € (0810.50.00.10)
• 100 hl. of wine with a protected destination of origin holding 2 litters or less; imported from Australia, valued at 60.000 € (2204.21.06.00)

A3. Matching and checking activity:

Here you have a link to a matching “hot potatoes” activity where you can find the same list given above and the correct for importations. With this activity you can check your answers in the previous one.

/ Working on customs fees

1.3Other documents or specifications required at customs

At importation:

When you are at customs, in the good’s clearing process from an importation, in addition to the presentation of Commercial documents (Commercial invoice and packing list) and DV-1, SAD, and the suitable Certificate of origin, sometimes, depending of the goods nature, some other certificates are required.

The best way to know exactly all the documents required for the importation, is to search with the concrete Taric code.

The same webpage you have used to search for the customs tariffs is the one to look up for specific conditions.

/ Taric EU webpage

Let’s analyse this process by an example. Imagine you are importing champagne, after codifying the product (2204.10.11.10) and identifying the tariffs you have to apply to calculate the customs fees, it’s necessary to know if any other certificate or document it’s needed.In the same webpage, after the list of the different countries and the tariffs you will find further information.

Here you have the link and a print screen image to see more clearly where the information appears, although it’s difficult to read from the image.

/ Customs information for "champagne"

For example, if the origin country is US, it’s necessary to attach to a certification document called “commercial document to accompany wine products originating in the US”. And also if the origin is Switzerland, you will need the correspondent certificate too.

At exportation:

When you are organising exportations, you have to take into an account the origin rules (European) but also the requirements in the destination country. In the EU website there is a placecalled “Trade” where you can find everything need at exportations from EU.

It’s really important to know every document that is needed because you have to provide some of them to the buyer in order to clear goods at customs.

After introducing all the information of the transaction required you obtain all the process and documents you need to know to arrange the sale. You have to introduce the destination country and the Taric code of the goods.

The link to the export helpdesk is this given below:

/ EU Export Help

Like in the importation, with the following example it’s going to be explained all the process.

Imagine now that you are organising a wine exportation to US, the Taric code of the wine you are trading is 2204.21.06.00.

The screen where you have to introduce the information is this one:

After clicking search, you have to accept the terms and conditions, and the information is shown in the next print screen image.

TO KNOW MORE
Here you are a video from EU trade helpdesk where more information of the exportation information procedure called Market Access Database is given.
/ Exportation helpdesk

To finish the unit, here you are an activity to practise this last content.

A4. Customs specificationsat exportations and importations.

Here you have a true or false activity of importations and exportations. After searching the information as in the examples you have to decide if the statements are true or false.

a)When exporting “lampant” olive oil (1509.10.00.00) to US is need to complete and shows at customs the DHHS/FDA FOOD FACILITY REGISTRATION.

b)When importing vodka from Russia (2208. 60.11.00), to EU, a special Quality certification is required.

c)When importing high quality beef meat from Australia (0201.10.00.10) a certification called “veterinarian control” is required.

d)There is a temporary import prohibition in Russia to the EU exportations of high quality oranges (0805.10.20.11).

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AF_CM02_ International Trade Procedures / Unit 3