The Customs Broker as Trade Facilitator

05.27.2021 | Loren M. Hall

As a business, taking the first leap into importing or exporting can be daunting. One must locate an appropriate market to buy or sell, forge business relationships in that country, navigate cost negotiations and purchasing terms. The list goes on.

Though some of these aspects may feel similar to that of a domestic operation, navigating the quagmire of international trade rules written and enforced by governments around the world is likely to be wholly unfamiliar to a new trader. Though many countries permit businesses to file import or export documents on their own, most businesses find that doing so would be incredibly time consuming, complex, and risky from a compliance standpoint. Small- and medium-sized businesses that don’t have the resources or scale to justify an in-house trade compliance team can be particularly overwhelmed at the prospect of international trade.

Enter the customs broker: expert in all things trade.

Customs Brokers Matter

Recognizing the foundational importance of skilled customs brokers to trade facilitation, the Center for International Private Enterprise, through the Global Alliance for Trade Facilitation, is currently supporting multiple developing and emerging economies to modernize their customs broker frameworks and build the capacity of customs brokers.

These projects focus on installing regulatory provisions for customs broker accreditation through training and objective assessment and examination. Ensuring competent, consistent service levels within the customs broker industry will mean greater trust in the supply chain between traders, brokers, and regulators and, ultimately, lower time and cost to trade.

A customs broker knows how to navigate Customs and other government agency requirements at the border so your goods can compliantly and efficiently reach their targeted destination. For starters, brokers help traders determine which of the nearly 43,000 product classification (HS, HTS) codes best fit their products. These codes are internationally recognizable to some degree and help authorities know how to treat your goods. No, the process of identifying the correct classification code is not as easy as “googling it.”

The Center for International Private Enterprise, through the Global Alliance for Trade Facilitation, is currently supporting multiple developing and emerging economies to modernize their customs broker frameworks and build the capacity of customs brokers.

Though some intelligent software has recently made strides in product classification, a broker must apply a detailed set of classification criteria called the “General Rules of Interpretation” to find the single best code for a given item. Finding the right code is a major factor in determining the cost of trade for your business, because each code is tied to applicable tariff and fee rates, eligibility for potentially duty-free Preferential Trade Agreements, etc.

Sorting Through the Fine Print

For many items, even the smallest, seemingly insignificant product features can change the classification code. For example, an air mattress (or is it “airbed”? – it matters!) might be considered to be Harmonized Tariff Schedule of the United States (HTSUS) code 3926.90.7500 “other articles of plastics…pneumatic mattresses and other inflatable articles, not elsewhere specified or included” or, alternatively, HTSUS code 9403.70.8015 “Other furniture and parts thereof: Furniture of plastics: Other.” The answer as to which code applies depends on many things including features and dimensions of the item that might make it more or less furniture-like. Here’s the kicker: one code carries a 4.2% tariff that must be paid to Customs while the other is duty free. 4.2% seem like small potatoes to you? Consider that average retail profit margins are around 10% – the difference in this code could eat up nearly 50% of your potential profit!

After determining the appropriate classification, brokers help traders understand the applicable valuation and origin of the goods, again following the detailed regulations and guidance put in place by governments. Valuation is not always as simple as declaring the amount transacted between the buyer and seller. In the United States, for instance, Customs recognizes six different methods to value merchandise. Each is potentially applicable under a certain set of circumstances.

Similarly, determining the country of origin is not always as simple as reporting the country of export/import. So-called “Rules of Origin” (ROO) are a broker’s guide to determining the appropriate country of origin of an item. Governments across the world use their own rules which can vary and, on top of that complexity, individual trade agreements themselves (of which there are more than 400 globally) typically include special ROOs.

If Something Goes Wrong

Should the classification, valuation, origin or other critical information on a Customs Entry contain errors, traders may find that their goods take longer to clear customs, cost more than planned, or, worse yet, have fines, penalties, or even seizure imposed by a government. If information presented on an entry seems off to government officials, they may even designate the consignment into a “red channel” to conduct a physical inspection which will likely entail a fee and a holdup at the port. For businesses, especially the small- and medium-ones, these complexities can drive uncertainty and inefficiency. Without an expert to guide traders, the challenges of international trade might even cause a business to have lower volumes of trade or, worse, not to trade at all. Competent and professional customs brokers with expertise in navigating these complexities can therefore be seen as trade facilitators that are beneficial to governments and the private sector alike.

With a skilled, professional customs broker by their side, traders can have the confidence they need to take that first leap into international trade and, with any luck, bring economic development to their country in the process.