CUSTOMS CLEARANCES

is a critical part of shipping freight internationally. This guide will discuss the different types of customs entries, how taxes and duties are calculated, and walk through the customs clearance process step-by-step.

This Guide Contains:

What is Customs?

Customs refers to a government agency responsible for regulating the import and export of goods and enforcing customs laws and regulations within a country. It is usually part of a country's border control. Its responsibilities include collecting duties and taxes on imported goods, preventing smuggling, and ensuring compliance with trade regulations. Customs plays a crucial role in facilitating international trade, while also protecting domestic industries, public health, and national security.

What does it mean to "clear customs?"

When importing or exporting goods, “clearing customs" is the process of officially passing through the Customs authority of a country. Shipments arriving in a foreign country must “clear customs” to comply with the regulations and requirements of that country. It is a critical step in the international shipment process, allowing goods to legally enter or exit a country and ensuring all customs regulations and obligations are met. Failure to clear customs properly can result in delays, penalties or seizure of goods.

What is a Customs Broker?

A customs broker is a licensed professional or a company that assists individuals and businesses in importing and exporting goods across international borders. They act as intermediaries between the importer or exporter and the Customs authorities, facilitating the clearance of goods through customs and ensuring compliance with the relevant laws, regulations, and documentation requirements.

What does a customs broker do?

Before imported merchandise can be delivered to its final destination, the customs broker prepares a customs entry and files it with the local Customs authorities, manually or electronically. The broker will apply classification codes to the merchandise, calculate its value, and report relevant statistical information. A broker also helps facilitate clearance of cargo through other interested government agencies, such as the Food and Drug Administration (FDA), Department of Trade Industries (DTI), Bureau of Internal Revenue(BIR) Etc.

Why Do I Need a Customs Broker?

• Expertise/Knowledge - Customs regulations and procedures are constantly changing. A competent broker has specialized knowledge and expertise in navigating these regulations, ensuring compliance, and avoiding costly errors.

• Customs Documentation - Customs brokers can help you accurately prepare and submit necessary documents, such as import and export declarations, commercial invoices, packing lists, and certificates of origin. This can reduce the risk of delays or penalties.

• Customs Clearance - Brokers facilitate the customs clearance process, which involves the examination and release of goods by Customs authorities. Brokers work closely with Customs authorities to make sure your goods meet all the necessary requirements, duties, and taxes and are cleared efficiently. 

• Cost and Time Savings - Brokers can help minimize unnecessary expenses and identify cost-saving opportunities. Some brokers offer additional trade advisory services on duty reduction programs, trade agreements, and tariff classifications that may lower your import costs. Brokers can also help streamline the customs clearance process and expedite the movement of your goods across borders. This saves you valuable time to focus on your core business.

• Risk Management - Brokers help mitigate risks by ensuring accurate and timely submission of documentation and adherence to customs regulations. They can identify potential compliance issues and resolve them before they become costly problems.

• International Trade Regulations - Brokers are well-versed in the complex landscape of international trade compliance, including proper goods classification, screening for restricted or prohibited items, and ensuring compliance with export control laws. 

What is the Customs Clearance Process?

Customs clearance involves multiple steps and procedures, including:

1. Documentation - The importer or exporter must provide the necessary documents—such as invoices, packing lists, bills of lading, import/export permits, etc.—to the customs authorities. Often an importer/exporter will utilize a customs broker to work directly with customs on their behalf.

2. Customs Declaration - The importer or exporter must submit a customs declaration form that provides detailed information about the shipment, such as the nature of the goods, their value, quantity, country of origin, and intended use.

3. Examination and Inspection - Customs authorities may conduct physical inspections, x-ray screenings, or laboratory testing of the goods to verify the provided customs declaration information and ensure compliance with all regulations.

4. Duty and Tax Assessment - Customs authorities assess the applicable duties, taxes, and fees, based on the classification and value of the goods.

5. Payment and Clearance - The importer is responsible for paying the duties, taxes, and fees. Once payment is made, customs authorities issue a customs clearance certificate or release order, and goods can proceed to their final destination.

What Documentation Do I Need To Give My Broker?

Here is a breakdown of the more common types of documentation:

• Commercial Invoice - Used by the exporter when processing the original terms of sale, quoting pricing, and/or determining duties and taxes. Detailed information about the transaction between shipper and receiver/consignee, typically with these characteristics:

  • Printed on company letterhead

  • Full details of shipper, consignee, intermediate consignee, importer of record, etc.

  • Reference numbers (Invoice, Purchase Order, etc.)

  • Date

  • Description, quantity, and value of goods

  • Country of Origin

  • Harmonized Tariff Code specific to import

  • Original signature in blue ink

• Bill of Lading (B/L) - Primarily used in ocean transportation, the B/L is a legal document issued by the carrier (shipping line or freight forwarder) to the shipper of goods. It has three main functions: 1) serves as evidence of the contract of carriage; 2) represents the title of the goods, and 3) provides instructions for the carrier and receiving party for handling and delivery of the goods. Contains critical details, such as shipper and receiver/consignee name and address, description of goods, port of loading and discharge, vessel name, freight charges, and agreement terms (See Incoterms above). 

• WayBill - Commonly used in air and road transportation, a Waybill—also called an Air Waybill (AWB) in air freight—is a contract of carriage between the shipper and the carrier, similar to a Bill of Lading. It contains information about the consignment, such as shipper and consignee details, description of goods, origin, and destination airports or locations, charges, and any special handling instructions. Unlike a Bill of Lading, the Waybill is not a negotiable document and does not represent the title of the goods. It serves as a receipt of the goods and provides delivery instructions to the carrier.

• Packing List - A document providing detailed information about a shipment’s contents, typically prepared by the exporter or freight forwarder. Provides vital communication between the shipper, consignee, and other involved parties (e.g., Customs authorities, carriers, and warehouse personnel). Also aids in logistics management, inventory control, and resolving disputes or discrepancies. Typically includes:

  • Description of goods — Brief description of each item or product in the shipment, to help correctly identify and classify the goods.

  • Quantity — Specifies the quantity of each item or product in the shipment, including the unit of measure (e.g., pieces, boxes, pallets, etc.), so the recipient can verify the received quantity against the ordered quantity.

  • Weight and dimensions — Weight and dimensions of each item or product, as well as the total weight and dimensions of the entire shipment. This helps determine transportation costs and space required for storage and handling.

  • Packaging Details — The type of packaging used for each item, such as cartons, pallets, drums, or crates. May include information on packaging markings or labels.

  • Harmonized System (HS) Codes - Standardized numerical codes that classify each product or item for customs and statistical purposes. Helps Customs authorities assess duties, taxes, and import/export restrictions.

• Free Trade Agreements - are commerce treaties between three or more nations. The agreements reduce tariffs and make it easier for businesses to import and export. Since they are among many countries, they are difficult to negotiate.

  Example: ATIGA, ACFTA, AKFTA, AJCEP, AIFTA, AANZFTA, AHKFTA 

What are Incoterms?

Incoterms, or International Commercial Terms, are a set of standardized trade terms published by the International Chamber of Commerce (ICC).

• They are used in international trade contracts to define the rights and obligations of buyers and sellers regarding the delivery, transportation, and insurance liability of goods throughout their journey.

• They provide a common framework for commercial transactions across different countries and legal systems, to help ensure clarity and avoid misunderstanding.