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Tuesday, 29 January 2013

Part 3 – The Beginnings of the English Customs System

We know that Customs duties have been levied in Britain from at least the 8th Century but in fact they are probably as old as civilization itself.  Though there is no written or physical evidence to support it, England must have operated the Roman system of portoria (see earlier blog ) , for the collection of taxes on imports, exports and goods in transit (tolls) as the country (especially Londinium) was an importance centre of commerce and trade for the Roman Empire.  Excavations in Lower Thames Street, London uncovered the remains of a Roman quay, sadly not finding any evidence as to the possible site of a Roman portoria or Custom House, but the Customs Service has been closely linked with the sea, ships, quays, wharfs, warehouses and, of course, goods for centuries, so who needs evidence?

The earliest written record in England of actual Customs dues charged is in a Charter dated 743, granted by Aethelbad, King of Mercia, to the Abbey of Worcester.  It allowed the Abbey the revenue from the dues collected from two ships: “Which shall be demanded by the collectors in the hithe of London Town”.   In 745 a further charter, from the King of Mercia again, granted: “the toll and tribute of one ship which formerly accrued to me by rights” to the Bishop of London. Most ancient customs in England consisted of fees, like these, paid by the merchants for the privilege of using the king's warehouses, weights and measures and the name “customs duty” supposedly came from the fact it was an inheritance of the king by immemorial usage and common law, (ie customary) and not granted through statute; this definitely changed going forward when “government” became involved in customs. It was not nationally organised at this time but ran on separate grants being issued at individual ports. (Further other definitions see blog 1)

It was in the year 979 that we find real documentary evidence of systemised import duties in England.  King Etheldred established a system at Belingsgate (Billingsgate), in the port of London, for collecting import duties on ships and merchandise.  The duty was levied at:
  •  ½d on a little ship
  • 1d on a larger ship with sails
  • A ship full of wood, one piece of wood as tax
  • Men of Rouen who shall come with wine or large fish shall give a due of 6s
  • Men from Flanders, Normandy and France shall be free of tax.

There were other duties on cloth, cheese, butter and eggs.  Even in these early days, with the various exemptions, the duties were complicated to calculate, collect and administer.

After the Norman Conquest a type of excise duty was introduced to take tax advantage of the considerable increase in the import of wine, especially from Gascony.  This duty on the new wine importers was called “prise”, collected in kind by the King’s butler  - mainly to supply the King and his Court with wine.  It didn’t take long for the “prise” to change from casks of wine to money – this fiscal tax was called “butlerage” and it survived until the early Nineteenth Century.

To see a centralized, formalised English customs system we need to move forward to the Winchester Assize of 1203-4.  The great administrator and tax enthusiast King John decreed that: “the customary dues at the ports”, ie money/ taxes due, should be accounted directly to the State Treasury, payable to the King personally and not through the local lords and sheriffs.  King John should, therefore, be given the credit for establishing a Customs service on a national scale responsible directly to the Crown.  King John’s other major administrative achievements included the establishment of the Exchequer, the reorganization of the Navy and establishing the foundations for a formal national Archives – oh, and annoying a certain hero/robber called Robin Hood.

King John’s decree at Winchester Assize established a duty of one-fifiteenth on all imports and exports (called the “quidecima”), led to the formation of a Customs Service when he employed six or seven 'wise and substantial men, well versed in the law' to account to him for the revenue, established ports where goods could lawfully be imported or exported and set up the first know Custom House in very close proximity to Billingsgate. 

The next blog will look at these first Tariff Charges and development of the English Customs Service.

Friday, 25 January 2013

Part 2 - Duties, taxes and tolls: so nothing's changed

So, after reading Part One of our History of Customs & Tariff blog  Hyperlink 1, you now know where the first tariff “book” was found (Palmyra/ Syria AD136) and what the words customs, duty, excise and tariff means.  But what we’re talking about here isn’t something with no current relevance; what started centuries ago with the introduction of “customary dues” being collected, based on a menu of costs (taxes), was the systematic taxation of everyday people which continues today.

Customs Duties are taxes levied upon commodities imported into or exported from a country and, though no longer important instruments of commercial policy, transit duties or tolls which played a role in directing trade and controlling certain trade routes. Tolls were introduced in the Middle Ages and became very important during the mercantilist period of 16th–18th century, lasting into the middle of the 19th century in some countries.  

Duties have always formed one of the most important sources of the public revenue to be used at the rulers’ or governments’ discretion.  Actually the device of raising revenue from the quantity or value of exports and imports occurred naturally in all commercial states in need of money, at a very early stage of its history.  And a big momentum to the growth of these taxes was the need for money to wage war. 

It was much later that the charging of customs duty on imports developed from just being an income generator to also being a mechanism  to trying and slow down foreign competition to protect domestic industries.  Gottfried von Haberler in “The Theory of International Trade” (1937) suggested that the best way to distinguish between revenue duties and protective duties (disregarding the motives of the legislators) is to compare their effects on domestic versus foreign producers.

Ancient Duties

The Old Greeks in Athens imposed a duty of 2% on imports and exports over the Pierian Mountains from which they derived a considerable revenue from their customs.  They also levied an additional duty for the use and maintenance of the harbour (harbour fees). During the Peloponnesian war the Athenians, to replace the tribute paid by their subject states, they introduced a duty of 5% on all commodities exported or imported by such states.  By this means they hoped to raise more revenue than they could via direct taxation. A duty of 10% was established for a time by Alcibiades and other Athenian generals on merchandise passing into and from the Euxine Sea. Chrysopolis, near Chalcedon, was fortified and a “station for the collection of the duties” built.

The Romans also levied customs duties, under the name of portoria, these appear to have always existed as we have no record of their introduction and they are referred to in Ancient writings by guys such as Livy.  Portoria were levied on all goods imported by merchants for the purpose of re-sale, including slaves (trade has always struggled with morals), but things imported for the use of the state or for a person’s own use were exempted from it except “luxury” goods such as eunuchs and handsome youths. And along with the Roman duty system came the well know business of … smuggling.  At import or export a list of purchased items had to be lodged with the official responsible for collecting the tax, this official also had the right to search travellers and merchants.  If goods subject to a duty were concealed they were, on being discovered confiscated. (See nothing is new in the world of customs!)

So universal did these duties, local and national, become, that every continental nation was fairly covered with a network of customs lines. It is interesting to note though that, despite all these taxes being collected, international trade not only continued but grew. Once introduced, these duties seem to have been accepted without riots and, as they were profitable and difficult to abolish, many of them remain until the present time.

To end this blog here are the words of a customs officer (Veljko Velikić,) from Vršac, published in the magazine “Carinik” (Customs Officer) in November 1926. “Customs profession, one of the oldest trades (emerging immediately after the clerical, ruling and military professions), withstood many turbulences and assaults, but it persevered, survived and developed. The number of customs officers and customs houses reflects the greatness of a state. And there lies also the greatness of the customs profession.” 

Part 1:Customs duty where did it come from?

Friday, 18 January 2013

Customs Duty - where did it come from?

We seem to take it for granted that if we want to bring goods into our country from a supplier based in another country that the our government can claim a tax based on the cost of that purchase. But why? I will examining the background to customs charges in a series of blogs, but first, let's go back to the beginning.

The Words
"Customs", as a word, originally comes from the Latin consuescere, a compound verb formed from the prefix com- and suescere meaning "become accustomed". This passed into early Old French as costudne which developed via costumne to custome.

The word "duty" comes from Anglo-Norman (13th Century) dueté which was a derivative of Old French deu or "owed" (which, in itself gives us the English word "due") which was turned into débitus in Latin. From débitus we get the English words debt and debit. When it is linked to the tax owed to the crown or government for importing goods (or occasionally exporting) rather than sourcing them locally we end up with the definition meaning it is a customary tax due.

In England, customs duties were typically part of the customary revenue of the king, and therefore did not need parliamentary consent to be levied, unlike excise duty, land tax, or other forms of taxes. This, of course, made them a very popular source of income for the royal family.

The amount of tax due is published in a tariff. The word tariff appears to have originated from the Arabic ta?rifah, derivative of ?arrafa "to make known". Around 1591/2, via the Latinised tariffa or "arithmetical table" or "list of prices", it came to mean "an official list of customs duties on imports or exports".

The First Tariff

It appears that the first customs tariff was set out in Palmyra in AD136 and outlined different tax rates for different commodities being imported via Palmyra for the Roman Empire. Palmyra, a beautiful oasis city in the Syrian desert, was given the role of collecting municipal customs duties by the Roman emperor Hadrianus. The tariff was engraved on a stone pillar in both Greek and Aramaic - my particular favourite is "for salted goods carried by donkey, the person in charge of the customs farm shall collect three denarii per load at importation and exportation". Trade was state-controlled as it was considered a very important economic activity so, despite the tariff charges, imports were to be encouraged and exemptions from duties could be considered by the supervisor or frontier officer of the "customs farm". A temporary duty was often collected from caravans thought to be eligible for this exemption - giving us another word "a cess" (tax paid prior to assessing the correct amount) which we still see in some countries' tariff structure - before they were sent on to the chief inspector at the customs house to have the correct duty amount calculated and their entry documents officially stamped.

Unlike many taxes, customs duties were easy to collect and difficult to avoid. Though they were never popular, they did not lead to some of the disasters associated with other taxes. Customs duties have been one of the most reliable sources of public revenue for many centuries.

Friday, 11 January 2013

Top 10 Errors in using Incoterms Rules

In February 2011 we posted the top most common mistakes companies make when looking at the International Commercial Terms (Incoterms). These posts appeared at regular intervals on Twitter along with tips on using the new the Incoterms 2010 rules. Even thought it is 2 years since the new set first came in, we think it useful to re-print these tips .... would love your comments

Common Mistakes:

1. Some companies think that the Incoterms rules show where title/ownership passes. They do not. Incoterms rules only relate to the physical movement of goods and indicate how costs should be divided and where risk passes. The passing of risk has nothing to do with title.

2. If using the FCA term then a place must be named. FCA can limit the seller's responsibilities at their premises or extend them to the port/airport of departure. Buyer beware because if the term is used without a place named then, if a dispute occurs, the seller can chose the delivery point that best suits their purposes.

3. Sellers quote DDP but don't know how to get the goods into the buyer's country. Under DDP the seller must be the importer overseas which can take months of planning and registering the overseas company with the correct authorities. Lack of care when using DDP can leas to extra costs, risks, delays when tax registrations are not in place and disappointed customers.

4. Buyers accept DDP terms but don't check if their foreign supplier is registered as an importer or has sorted out tax issues. By default this can lead to the buyer being named on the import paperwork and receiving bills for taxes, eg VAT/GST when they have no control over the shipment.

5. Exporters think it is easier to sell ExWorks. The goods are handed over to the buyer's carrier at the seller's premises but then the seller is unable to get evidence of export leading to problems with the tax authorities as, without this evidence, it is viewed as a domestic delivery.

6. Using FOB for containerised freight - this is old fashioned and doesn't fit the modern supply chain operations. One issue is that once goods are in a container the seller doesn't know where damage occurs so the "ship's rail" and loading point if useless. Therefore, by default, has risk to the buyer's premises.

7. CIF/CIP - the only two terms that indicate the goods must be insured - but neither party understands that insurance is taken out by the seller in the buyer's name and that the insurance must be for minimum 110% of the shipment value. Can lead to inadequate or no insurance.

8. Using Group C - CFR and CPT especially - misunderstood. Though the seller pays to the arrival point the seller does not have risk of loss or damage. If buyer doesn't understand this and fails to cover the insurable risk can lead to goods damaged during shipment and no claim allowed.

9. Using DAP (and DDU from the 2000 set) without naming a place. If not limited to the place/port of arrival then the seller could find themselves expected to arrange for the goods to be delivered all the way to the buyer's premises - with the extra cost and risk implications.

10. All of the Incoterms rules must have a place named after the 3-letter term. Leaving this vague causes problems. Example - shipping EU to Australia; term CPT Australia - vague place named so seller can choose the most appropriate delivery point. If wrong place - extra transport costs will be the buyers. Australia is a big country so be specific.

Friday, 4 January 2013

A different perspective: customs brokers in Latin America

Of the many agents involved in international trade, customs brokers, as insiders, have without doubt some of the most interesting views to share. Having asked many for help and for tips over the years, we have decided to share some of their knowledge and advice regarding trade in Latin America with you. Whether you are importing from Latin America or exporting to the continent, these experts have a wealth of knowledge and experience to share with all of us. We have approached customs brokers in three countries: Mexico, Uruguay and Argentina.

Mexico is a large economy with over 112 million people and recognised as one of the world’s most open economies. It is part of the North American Free Trade Agreement (NAFTA) with the US and Canada.
Argentina is one of the largest economies in South America, with 40 million people, and also a commodities powerhouse, as the main worldwide producer and exporter of lemons and biodiesel, for example.
Colombia is one of South America’s recent economic success stories. A country of under 50 million people, it has witnessed record levels of economic growth in the past few years as well as growth in investment, boosted by the recent massive improvement in its international investment grading. Colombia is part of the “Comunidad Andina” with Peru, Ecuador and Bolivia. It has also contributed to the creation, very recently, of the “Alianza del Pacífico”, with Chile, Mexico and Perú.
First of all, we have asked customs brokers across the continent about the ease with which British businesses can expect to do export to their country.
Oscar Rueda, our Mexico contact, explains: “In general, Mexican Customs have implemented actions since 2008 aimed at making our country more attractive to investment and international trade. There are many facilities for importing and we process all orders electronically.” Oscar also highlights the Mexico/EU Free Trade Agreement FTA) but explains that there are some more “sensitive” sectors where importation can be a bit trickier and he quotes in particular “textiles and confections, toys, shoes and bicycles”.
 Alejandro Louzao, from Alcomex SA in Argentina, explains that protectionism is increasing daily and that “new barriers to imports appear almost every day”, no matter what the country of origin is. This means that UK exporters will be punished as much as those from other countries when trying to export to Argentina. Alejandro emphasises not just the operational obstacles but the currency exchange barriers that are making it very difficult to engage in international trade in his country.
Miguel Florez from Aviomar in Colombia, explains that there will be variations across sectors in terms of the advantages and disadvantages of trade between both countries. The key is to back up strategy with solid research. Colombia is overall an open economy, and electronic processes are now making it easier to deal with this country. Miguel emphasises that it is not just a question of knowing customs procedures and rules, but also the overall regulatory framework for a particular product. He believes that is where obstacles normally appear, and hence he would recommend British exporters to partner with someone in Colombia who understands the full regulatory framework.
We have also asked the experts what advice they would give British exporters wanting to start trading their countries.
Oscar, from Mexico, suggests:
  • understand the “rule of origin” which are key in the application of customs preferences
  • identify if a product actually has sufficient demand in Mexico and whether it can compete in price
  • have reliable advice in terms of which obligations the exporter has (not just in terms of duty) for each product exporter – this is where a good customs brokers can be truly invaluable
Alejandro, from Argentina, asks for UK exporters to “ensure that the importer has enough professional and credit capacity to carry out the importation” and he encourages UK exporters to “ask about non-automatic licences, restrictions, payment terms and declarations, which can all delay imports considerably”.
Miguel, from Colombia, suggests:
  • Making sure that the partner you intend to deal with in Colombia is actually exists and is legally allowed to act as an importer. Miguel suggests using the services of the Colombian Embassy in the UK for this purpose.
  • Researching the quality of the products that the company already deals with in Colombia, and what its overall position in the national market is.
  • Make sure that your export pricing accurately reflects the real costs of getting your products to Colombia. For example, some areas of the country are notoriously difficult and hence expensive to reach, and this must be factored in your export pricing. Miguel also recommends factoring in insurance and allowing for delays. He considers it essential to very accurately classify your products for international trade under international tariff codes, since mistakes or misunderstandings can be extremely costly. Once that code is identified, a customs broker can be extremely useful in identifying any additional internal licenses or regulations that apply (above any customs duties and regulations)... “it is better to ask than to regret”, he sums up.
International trade is two-ways, so customs brokers can also advise on importing Latin American products into the UK (and the EU). What advice would customs brokers give British importers?
Oscar, from Mexico, emphasises the broad export offer of this country, which is attractive to European markets, such as food products, decoration items and crafts, but also industrial exports. He would recommend British importers to deal with well-established businesses with solid and clear processes and export experience.
In the case of Argentina, Alejandro suggests “research well the continuity of exports, quality of the products and payment terms”.
Miguel recommends making use of ProExport in Colombia (, who have plenty of information on Colombia exporters, as well as seeking the support of the binational chambers of commerce.
With huge thanks to:
Alejandro Louzao, Alcomex SA (Argentina) 

Lic. Oscar Ricardo Rueda Thomas, Consorcio Jurídico Aduanero (Mexico)

Miguel Florez, Aviomar,Bogotá, Colombia