As more and more national economies become a dynamic part of the global system, so grows international commerce. Global exports are 40 times larger in value than in 1913, a year that marked the end of the first wave of globalization with the outbreak of World War I a year later. Ever since, the exchange of goods and services on a global scale has not only gained in volume but has also increased the complexity of supply chains.
To demonstrate the sheer volume of traffic, London-based studio Kiln and the UCL Energy Institute created an interactive visualization of the data, showing maritime shipping routes and cargo ships for the year 2012.
Created by London-based data visualisation studio Kiln and the UCL Energy Institute
Many sectors are involved in the process of importing and exporting cargo. As international trade comes with risks and consequences (but also generates gain), national and international shipping regulations have become necessary to ensure that operators carry out their business securely and safely.
From a national point of view, most countries impose tariffs on importations based on type of goods and country of origin. Any company involved in global commerce must be aware of and in compliance with the various requirements both at the international and domestic level.
Matters become even more complex when dealing with dangerous goods, arms and defense products or dual-use items.
Harmonized Tariff Schedules (HTS) and the Importance of Country of Origin Certificates
If the war on tariffs between the United States and China is any indication, keeping up with the Joneses is a walk in the park compared to staying up-to-date with rates and affected goods. Since 2018, the mammoths have played tennis over tariff changes, countered with retaliation measures, and compromised on some issues.
Essentially, tariffs are trade taxes applied on exports and exports, specific to product type and/or country of origin. It acts both as a source of revenue for the importing country and a protective measure against the competition of foreign production. Harmonized Tariff Schedules (HTS) in particular are a classification system for goods imported into the US based on name, make, and intended use.
The correct tariff on imported products determines:
-
- The applicable duty rates
- Compliance with existing trade sanctions and embargoes
- The qualification for exemption under trade agreements with the country of origin
Reporting accurate information to the Customs and Border Protection agency is a matter of compliance and provides assurance you are not paying more taxes than you should. The companies you import from may supply information as a courtesy, but you should not solely rely on them. Incorrect HTS classification could either lead to (1) underpaying and exposing you to penalties or (2) overpaying and spending unnecessary amounts.
In the US, Country of Origin is defined in the Tariff Act of 1930 for “goods that are “wholly obtained” (grown, produced or manufactured) in a single country of origin, the country of origin of the goods is that single country. For goods that are manufactured in, assembled in, or use materials originating in more than one country, the country of origin of the goods is the last place in which the good was substantially transformed into a new and distinct article of commerce”.
The law requires that “every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently”
In addition, proper and complete documentation is required, including the country of origin certificate which matches the country stated on the commercial invoice or the packing list.
Selecting the Proper Incoterms
Incoterms (International Commerce Terms) are harmonized contractual terms between the seller and the buyer defining their respective obligations, that is when/where do the sellers’ responsibilities pass onto the buyer in terms of:
-
- Transport
- Insurance
- Transfer of risk
- Customs clearance
- Delivery to the final destination
The main benefit of Incoterms is to ensure both parties understand the terms without the ambiguity of locally different terminologies, language misinterpretation. They considerably reduce the risk of chain supply interruptions due to unclear terms of payment, delivery timelines, total cost and contribute to avoiding unnecessary delays, inventory management challenges, and distribution obstacles.
Laws in international trade are in constant evolution. It is considered best practice to implement regular review programs to stay accurate and cost-effective.
The degree of control the buyer wishes to have depends on their own processes and operations, but one must consider the logistical and geopolitical landscape of the seller’s country. Relinquishing all obligations to the seller could lead to accrued chances of bribery habits along the way, or unsafe practices designed to cut costs.
Commerce Control List
Goods that have commercial applications and potential military use belong to the Commerce Control List, governed by U.S. Department of Commerce’s Export Administration Regulations.
An Export Control Classification Number (ECCN) identifies each item on the list. This alpha-numerical code describes the item and the associated licensing requirements.
The products fall under 6 categories
-
- Systems, equipment, and components
- Test, inspection and production equipment
- Material
- Software
- Technology
And range from nuclear to electronics, navigation and avionics, chemicals, etc.
If an item is not on the list but destined to embargoed countries, the end-user of concern, or in support of prohibited use, you may require the obtention of an export license.
International Maritime Dangerous Goods Code
The increase of maritime traffic, the diversity of goods globally traded, and the entry of more countries in the game equate to increased risks of accidents and insufficiently strict processes, especially when shipping dangerous goods.
In 1965, the International Marine Organization adopted The International Maritime Dangerous Goods Code setting forth shipping regulations designed to prevent pollutions at sea, onboard accidents, and increase crews’ safety. This code applies to all cargo shipments around the world.
Items of compliance include
-
- Proper packaging and handling
- Markings, labels, placards
- Loading/unloading safe practices
- Handling in voyage
- Containment procedures
- Emergency preparedness
All crew members must attend training.
Regulators propose biannual amendments that take effect a further 2 years after if adopted. Keeping up with changes is necessary to ensure the safety of people and the protection of marine life.
International Traffic in Arms Regulations
The International Traffic in Arms Regulations (ITAR) falls under the scope of the U.S. Department of State and requires compliance with rules and regulations of the Directorate of Defense Trade Controls, the United States Munitions List, the United States Code, and the Code of Federal Regulations and regulates the export of space and defense products.
Not exactly the people you want to upset.
“Any person who engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services is required to register with the Directorate of Defense Trade Controls (DDTC)[…] manufacturers who do not engage in exporting must nevertheless register.”
It is crucial to understand what exporting really entails in this context. While we generally understand exporting as selling goods or services across borders or overseas, a simple oral exchange of information about a military-controlled item between you and your golf buddy is considered deemed export.
The requirements to be able to export under ITAR governance are quite stringent, understandably so. To name a few:
-
- Registration with the DDTC
- Written export management compliance program in place
- Voluntary self-disclosure policy
- List of Empowered Officials and training to compliance personnel
- Non-U.S. employees, partners, contractors pre-screening
- Record-keeping in soft and hard copy
- Technology Control Plan and/or Transfer Protocol
Being a defense contractor requires a solid program and dedicated compliance resources to meet ITAR regulations and minimize risk exposure.
The Takeaway on International Shipping Regulations
Whichever your industry or your position in a supply chain, adhering to global trade regulations and national laws is like catering for hundreds of guests every day. Relying on business partners or suppliers/clients to perform these duties is inefficient and extremely risky. They too need to attend to business; ultimately, the responsibility falls back on you wherever your obligations lie.
Since its creation, Source Intelligence has committed to developing solutions that closely respond to global trade evolution and challenges for importers and exporters. Rather than disseminate your teams and resources across so many compliance programs and shipping regulation regulations, domestic or international with the integration and integrity gaps it can create, we offer an all-in-one platform. You gain transparency, visibility, efficiency, and, yes, compliance.
Source Intelligence specializes in data collection from supply chains and assists our clients in turning data into knowledge to support informed decision making.
Our solution includes:
-
- Collection of Country of Origin Certificates,
- Automatically generated HTS codes,
- Export Control Classification Numbers and
- Additional Customs and Trade data necessary.
Fulfill your companies import and export requirements in one user-friendly spot.
[sc_fs_multi_faq headline-0="h2" question-0="What do tariffs determine?" answer-0="Reporting accurate information to the Customs and Border Protection agency is a matter of compliance and provides assurance you are not paying more taxes than you should. The companies you import from may supply information as a courtesy, but you should not solely rely on them. Incorrect HTS classification could either lead to (1) underpaying and exposing you to penalties or (2) overpaying and spending unnecessary amounts. " image-0="" headline-1="h2" question-1="What is Country of Origin?" answer-1="In the US, Country of Origin is defined in the Tariff Act of 1930 for “goods that are “wholly obtained” (grown, produced or manufactured) in a single country of origin, the country of origin of the goods is that single country. For goods that are manufactured in, assembled in, or use materials originating in more than one country, the country of origin of the goods is the last place in which the good was substantially transformed into a new and distinct article of commerce”. The law requires that “every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently” In addition, proper and complete documentation is required, including the country of origin certificate which matches the country stated on the commercial invoice or the packing list. " image-1="" headline-2="h2" question-2="What are Incoterms?" answer-2="Incoterms (International Commerce Terms) are harmonized contractual terms between the seller and the buyer defining their respective obligations, that is when/where do the sellers’ responsibilities pass onto the buyer in terms of transport, insurance, transfer of risk, customs clearance, and delivery to the final destination. The main benefit of Incoterms is to ensure both parties understand the terms without the ambiguity of locally different terminologies, language misinterpretation. They considerably reduce the risk of chain supply interruptions due to unclear terms of payment, delivery timelines, total cost and contribute to avoiding unnecessary delays, inventory management challenges, and distribution obstacles." image-2="" headline-3="h2" question-3="What products fall under the Commerce Control List?" answer-3="Goods that have commercial applications and potential military use belong to the Commerce Control List, governed by U.S. Department of Commerce’s Export Administration Regulations. An Export Control Classification Number (ECCN) identifies each item on the list. This alpha-numerical code describes the item and the associated licensing requirements. The products fall under 5 categories: (1) Systems, equipment, and components; (2) Test, inspection and production equipment; (3) Material; (4) Technology; and (5) Software. These range from nuclear to electronics, navigation and avionics, chemicals, etc. If an item is not on the list but destined to embargoed countries, the end-user of concern, or in support of prohibited use, you may require the obtention of an export license. " image-3="" count="4" html="true" css_class=""]