The Elephant in the Corner - trade regulations

Thanks to the excellent TV comedy “Outnumbered” we are all aware of the “elephant in the corner” – a subject or topic that is in the back of people’s minds but skirted around or avoided as being too delicate, difficult or embarrassing. At a recent BeXA event held at the wonderful Rolls Royce Learning & Development facility in Derby entitled: Innovation in Exporting: the World Awaits – I was asked to do a 10 minute slot on Customs Procedures. I had the worse time slot too, just before lunch, when, if other speakers have over-run (which usually happens) the attendees wish this one would just be cut from the agenda.

What fantastic, inspiring talks – we were entertained and overwhelmed by Simon Topman the CEO of Acme Whistles who explained why they are still producing whistles in Birmingham since 1870 and export 85% of their goods, with an export growth of 27% (6 million whistles exported a year!). Whistles, low technology – you must be joking! His story about the hand-grenadine shaped duck call for US hunters was fantastic. They know that other regions of the world will copy their new whistles in 6 months or so but they stay ahead. Then Paul Titley, Managing Director of a pharmaceutical testing company, Aesica Formulation Development explained how they keep ahead by selling Good Manufacturing Practices (GMP). Graham Tyers, Managing Director of Newson Gale and Mike Norfield, Chief Executive, Team Telecom Group also shared what gives them an edge in the international market place and why they believe exporting keeps their businesses alive. And all the time I’m thinking – customs procedures, rules, regulations, fines, penalties – did they really want to hear from me?

Well, I had prepared the talk in line with the theme of the day “Innovation in Exporting” so I knew I’d surprise a few people when I showed how exploiting your knowledge of customs regulations and being so comfortable with rules, documentation, etc, gives you “an unfair advantage” when trading internationally. But as I listened to the other speakers I realised that the role I, and other trade compliance people, play is the elephant in the corner. Great export deals are done, fantastic innovation, wonderful profits included in contracts but – rules, pre-shipment inspection, certificate of origin, tariff classification – if you squint your eyes in a marketing meeting you can probably just get a quick glimpse of the grey shape in the cornering lifting its trunk to comment before – whoosh – everyone moves on.

Well, it’s time to come out of the corner. Trade compliance is not a nasty afterthought or undesirable necessity it should be part of the planning and marketing strategy. You can’t change a commodity code of a product to get a lower duty rate or reduce licensing regulations (well not legally anyway) but you can change a product or how it is shipped to get a better commodity code (legally). Why just issue a EUR1 Form because your customer asks for one – sell the fact that as we are in the EU and have a trade agreement with our customer’s country our goods will actually be cheaper to import because of this form. Sell the fact! Even increase your price, where you have an option – example a UK exporter sells to Turkey, the standard rate of duty into Turkey for their product is 14%, if the goods can be shipped with a preference form (ATR Form) the 14% becomes NOTHING/ ZERO!!! Isn’t that worth a 1-2% increase in the selling price to make sure the form is produced? Knowledge is power, is an adage often used – well the elephant of trade compliance has quite a bit of untapped knowledge. Invite us to the table.


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Dave Heaver MIEx on the ....

Origin Woes & Dangerous Treaties

If you want a certificate of origin approved by your local Chamber of Commerce, whether or not it is in connection with any preferential tariff treatment, you will need to supply them with “proof of origin”. For years a signed declaration from your supplier has probably been accepted to satisfy this requirement. But beware… things are changing.

Recently the Chambers have been tightening up on their origin requirements from the exporter, requiring more substantiated documentary proof of where the goods “originate” before they will approve a certificate of origin. But this has led to a few problems for exporters. Supply chains these days can be long and complex. Many exporters buy products from third parties; who in turn may have bought from elsewhere in the UK who may have sourced them from an overseas supplier who had them manufactured specifically for them in a galaxy far, far away… Or maybe by a small manufacturer in a town in Poland, or Latvia, or India... well, you get the idea.

So, picture the scene. You, the UK exporter, have a consignment packed and ready to ship. You prepare all your shipping documentation and apply to the local Chamber for a non-preference certificate of origin. It is rejected because the “declaration of origin” which they have always accepted in the past is now unacceptable. So you go to your UK supplier and ask them for a declaration of origin from the manufacturer of the goods… But your supplier is still perhaps several more steps removed from the actual manufacturer, and even if he knows who makes the products, he doesn’t want his customer - you – to know this information, for fear that you will then go direct and cut him out of the loop. And if he doesn’t know the manufacturer, he will have to request this same information from his supplier, who will go through the same thought process.

So, the Chambers of Commerce came up with a cunning plan whereby the manufacturer’s details can be sent direct to the Chamber who will hold this information confidentially, and the exporter can then declare, “evidence of origin is held by the xxxxxxx Chamber of Commerce” on their C of O application… Job done; right? Well not necessarily…

Perhaps your supplier - or theirs - is themselves not an exporter, and never deals with the Chambers of Commerce and therefore doesn’t really know what they do. So now begins the Spanish Inquisition: “Why do you need to know this now?”; “Who is the Chamber of Commerce to make us divulge this information?”; “What guarantees do we have if we provide you with this confidential information?” etc…. and all the time, the clock is ticking.

The rules of origin are defined in Article 24 of the EU treaty. They are sent out to individual Chambers by the British Chamber of Commerce and are clear as to what is required… but do you have a copy of these rules? If not, you should get them from your local Chamber. However, as we know with so many things which are proposed by the EU (remember the standardised curve of the banana fiasco?); it is the impact of these rules in the real world which is causing some consternation. If you cannot get the required and acceptable proofs of origin from your suppliers, and you cannot send a certificate of origin which your customer requires, what happens then?

I suggest you pass the problem back to the Chamber of Commerce and ask them to try to get the documents they require to prove origin. They say they are there to help exporters, so this way they will see first-hand exactly how unworkable these requirements can be in the real world.

But that is just one frustration for exporters…

The government keeps banging on about how they want companies to export the country back to prosperity, but there seems to be an increasing undercurrent of unnecessarily complicated hurdles to be jumped by exporters. It has been reported that UK companies applying for export licences still find it an extremely slow process with no significant signs of improvement over the years. However, one exporter has reported chasing for their licence which had been in the system for several weeks, only to find the process taking even longer than usual; almost, she felt, as a punishment for daring to chase up the dawdling civil service. This irresponsible and immature attitude from any government department, let alone BIS, is a totally unnecessary frustration to an already difficult job.

Of course there are without doubt some forward thinking individuals within government departments, but sadly there are also far too many who are simply plodding their way to their overblown pension, either incapable or unwilling to work - and respond - at the speed demanded by modern commercial business.

And what happens to the new or inexperienced exporter who comes up against such bureaucracy and all the associated intransigence? Their first thought is likely to be, why should I bother? This is too complicated and time-consuming.

And then of course we have the Blair/Bush legacy, which has resulted in an ever more regulated and far less flexible international trading environment which does little or nothing to encourage companies to trade overseas. In the light of the recent extradition of retired British businessman Christopher Tappin, without trial, to the US, UK exporters will (or should) now be doubly wary of violating US export regulations. These regulations are so complex that many exporters could easily find themselves facing a similar situation, simply through a genuine mistake or a failure to appreciate the depth of research they need to do into their customers before shipping. The UK government should stand up now and withdraw from this one-sided treaty which has no logical basis in law. UK exporters are (generally speaking) not a bunch of terrorists and should not be presumed to be so by any so-called friendly foreign government. UK exporters need help and support from their own government, not dangerous, lawless pacts with paranoid overseas totalitarianism which puts UK citizens at unacceptable risk. The powers that be need to recognise this urgently and act accordingly. Or to paraphrase the vernacular, perhaps it’s time for the UK government to cultivate some testicular fortitude …

Also see article: EU Preference System: Overview

Training:

The Export Course

Understanding Origin and Preference

Preference and Origin Rules Explained

Essential Guide to Customs Procedures

Preference: Supplier Declarations - do you know your responsibilities?

Supplier Declarations are more commonly used to support the issuing of preference documents, eg EUR1 Forms, invoice declarations (approved or low value) and ATR Forms (Turkey).

As the Preferential Trade Agreements (PTA) are governed by specific rules, relating to the manufacturing origin of the goods and often the percentage of components or materials bought in from a country not covered by the PTA, anyone issuing preference statements must ensure they know the status of any bought in finished goods or components/materials BEFORE issuing the preference declaration.

Companies can be asked to provide “Supplier Declarations” to customers in other EU countries, including the UK, so they can establish if the goods qualify for preference when shipping them out to other countries. These statements have the same legal responsibility as issuing the EUR1 Forms or preference statements therefore companies must have a clear procedure and control over this activity.

Any company buying goods from UK or EU suppliers cannot assume these goods meet preference conditions UNLESS they have a Supplier Declaration. These declarations are to be obtained on an annual basis and must be used when assessing if export shipments meet the rules of preference origin. Any goods, components or raw materials bought in NOT supported a Supplier Declaration must be declared as NOT QUALIFYING.

The use of these Supplier Declarations are now been extended by companies to include a statement from the supplier as to the ORIGIN (ie where it was made) and commodity code applicable to the goods.

What are your experiences of issuing or obtaining Supplier Declarations?
Do your sales people understand the importance of these forms if requested by customers?
Is issuing invoice declarations, EUR1 Form or ATR Forms treated as just another documentary requirement without management understanding there could be 5 years imprisonment in the background!

Also see article: EU Preference System: Overview
Training: The Export Course
Understanding Origin and Preference
Preference and Origin Rules Explained
Essential Guide to Customs Procedures