2011 Customs Outlook: What to expect from the year ahead

20 January 2011

The Christmas period has come and gone in the blink of an eye and we are back to life and reality facing up to what the Government and experts are calling “a tough year ahead”.

However, there are indications that business confidence is returning and that 2011 will be a year of growth and renewal. This article reflects our view of the likely customs developments and trends for 2011. We see these trends being shaped by customs regulatory changes one the one hand and the customs implications of key strategic business changes on the other.

Customs Regulatory Changes

New Regulations

From a customs point of view, 2011 has already seen the introduction of the Import Control System as well as the new preferential rules of origin. The carrier of the cargo is responsible for compliance with the Import Control System but importers will need to discuss and liaise with their freight forwarders to ensure that there are no unnecessary delays to the shipment of their goods.

The preferential rules of origin have been relaxed but importers should be aware that the obligations on importers are being interpreted extremely narrowly so if you are benefitting from preference you will need to ensure that your goods meet the relevant origin rules and that you protect your business under the Good Faith Provisions.

New Customs Code

The EU Commission continues to work through the detailed implementing provisions of the new customs code which must be implemented by 2013. There are a number of key decisions which have yet to be finalised including the customs treatment of payments for intellectual property rights (royalties and licence fees for trademarks etc.) and whether the First Sale option will be maintained. We will endeavour to bring the key changes to your attention as soon as there is something concrete to report.

Earlier Notice of Customs Changes

The EU Commission and HMRC have been criticised for the amount of notice given to businesses of proposed changes in law and practice. There is a growing awareness of the need to give businesses time to implement any changes and we are hoping to see improvement in this area.

The role of HMRC in 2011

HMRC is very much caught in-between a rock and a hard place. It is under extreme pressure from Brussels to collect all customs-duties owed to the EU but is being forced to work within an environment of constant change and cutbacks. In fact, it is being reported that HMRC will be forced to cut resource spending by 15% and capital spending by 44% over four years, with £900 million of those savings being recycled to ‘transform’ HMRC’s work against avoidance, evasion and criminal attack, the Treasury announced. The Department is expected to reduce its administration costs by a third by 2014/15 and according to the President of the Association of Revenue and Customs, representing senior HMRC officials, says the announcement means that at least 13,000 jobs will go and, taking account of recent reductions, HMRC will be ‘around half the size it was a few years ago’

However, what we are experiencing is that HMRC appear to have tightened their procedures and are now examining claims and applications a lot more thoroughly than they were before as well as auditing businesses more closely. Businesses are now finding that they must jump through more hoops before their claims and applications are processed and that HMRC are picking up on more “irregularities” at audit.

Business Priorities for 2011

According to the Deloitte survey of CFO’s the key trends to look out for in 2011 will be:

• A higher appetite for risk
• Business expansion
• New market exploration and development and;
• A decreasing emphasis on cost control

Customs Impact of UK Business Expansion

The customs impact of business pace and change is often ignored or addressed very late in the day and this leads to numerous missed opportunities and an increased exposure to potential risks.
In our experience, many businesses delegate (or in some cases abdicate) their customs responsibilities to customs agents and freight forwarders. As such, the customs impact of business changes are not addressed until the goods hit the port of entry.

However, we have already seen in 2010 the emphasis that the EU are now placing on having the correct procedures and processes in place and that it is no longer sufficient to arrive at the correct answer “by accident.” Senior Accounting Officer (SAO), Authorised Economic Operator (AEO) and Customs Freight Simplified Procedures (CFSP) all require an importer to have documented and robust procedures and processes in place regardless of who makes the customs declarations. These developments should be acting as a catalyst for businesses to think about customs duty matters in a more strategic way.

Customs Impact of Overseas Expansion

Deloitte’s report indicates that almost two-thirds of CFO’s see markets outside of the UK as being the main driver of revenue growth. The customs implications of business expansion, especially into non-EU markets opens up a number of risks and obligations particularly the risks associated with the rules of origin.

There are three main risks and opportunities that importers should be aware of when making the decision to expand into non-EU markets:

• Export Origin
• Who bears the risk of customs compliance and costs in the overseas countries (Incoterms)
• Duty-Reliefs

Export Origin

The EU has entered into a number of reciprocal preferential trade agreements whereby EU originating goods may enjoy a lower import duty than goods sourced elsewhere.

Traditionally, export preference and export origin are areas that cause exporters (and their importing customers) significant problems. Although an origin certificate may say “Made in…” do the goods in question actually originate in the country stated on the certificate of origin and have you taken steps to ensure that the products meet the relevant rules of origin? Have you employed the Good Faith Provisions and have you protected your business contractually in the case of any future origin disputes with customs?

Incoterms

The Incoterms will, amongst other things, determine who is contractually responsible for export compliance and import compliance. Selling on DDP terms for example could make the exporter responsible for both. Taking responsibility for customs compliance and formalities in an overseas country could result in considerable additional administration and risk.

The customs regulations of the exporting and importing countries could also over-ride the Incoterms with some strange results. For example, UK exporters will still be responsible for meeting the necessary customs export formalities and export control legislation when they sell the goods ex-works if the buyer is not established in the EU.

Duty Reliefs

The use of duty relief schemes should be considered throughout the supply chain to ensure that customs duties are only paid in the country where the goods are consumed. For example, a UK importer could be bearing to customs costs of raw materials imported in to the US from Mexico and the US goods coming in to the UK unless steps are taken to drawback the US duties etc.

Are you employing (or planning to employ) any of the EU’s specified duty-reliefs that could enable you to benefit from a reduced import duty bill? Do you have adequately robust procedures and processes to ensure that (a) you fulfil the criteria for authorisation and (b) if authorised, enable you to robustly implement the duty relief in question?

Some businesses will be expanding overseas by outsourcing production and sourcing operations to low cost countries. Those importers sourcing goods from GSP beneficiary countries under the new preferential rules of origin will be aware that the new rules are slightly more relaxed than the previous rules. However, importers should be aware that the Courts have adopted an extremely strict approach in interpreting the rules as well as taking an extremely narrow view as to the obligations of the importer. If you are benefitting from preference under the GSP and you have consolidated your imports from a small number of suppliers, protecting yourself via the Good Faith Provisions will take on even more significance in 2011.

A decreasing emphasis on cost-control

The Deloitte’s report indicates that CFO’s will be under less pressure to ‘reign-in’ spending in 2011. This could provide businesses with a significant opportunity to review their current functions and to plan for any future exercise or expansion. One of the biggest misconceptions is that a customs review will only mitigate a business’s risks and is thus difficult to justify in terms of ROI. However, a customs review more often than not reveals a number of opportunities for businesses to save money and to recover any overspent duty going back three years.

ITS Comments

2011 will inevitably be another cautious year for business but there appears to be an increasing confidence in the business world that things will get better. The old adage ‘a new year, a new beginning’ is particularly relevant in the world of customs. After the turbulence and uncertainty of the previous two years, there is a prevailing sense (however cautious) that we are beginning to turn the corner into recovery. What better opportunity for businesses to review their current practices to reveal any weaknesses or to indicate cost-savings as well as to plan robustly for the future? International Trade Solutions has over 170 tried-and-tested customs solutions that have not only significantly mitigated our client risks but have also delivered them with millions of pounds of savings. If you would like to discuss how ITS can help your business then contact us on (01905) 619229 or email us at mail@internationaltradesolutions.co.uk.

 

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