When a country is as far away as Australia, the potential pitfalls for those dealing in international trade are big. In my experience, many SMEs don’t know the first thing about navigating the complex web of obligations, duties, and risks that come with importing or exporting goods. I don’t blame them.
So – aside from engaging RF Supply Chain Expertise – here’s a quick guide to the essentials to keep in mind when dealing in international trade.
Customs and HS Codes
Whenever something crosses a country’s border – whether you’re importing components or parts or exporting a finished product – it’ll pass through a customs process.
Which brings us to Harmonised System Codes (HS Codes).
HS Codes are what you use to classify your product in an international customs directory. They are administered by the World Customs Organisation (WCO) to serve as the foundation for import and export classification systems used by the majority of countries.
Every five years, the WCO assigns specific six-digit codes for varying classifications and commodities. Countries are allowed to add longer codes to the first six digits for further classification.
Companies are themselves responsible for putting on correct HS Codes, so it’s vital to get these right – otherwise you might be fined, or your product could get stuck at the border.
Just because you’re an SME, not a big corporation, doesn’t mean you’re excused!
And while products might seem alike at first glance, that doesn’t mean they’re classified the same. Beer is classified differently from water, for example – as the HS Codes correspond with different taxes, regulations, and fees that are applied at the border.
In my experience, the best practice is to send a sample product ahead of a full shipment to test whether it’s cleared by customs authorities – rather than risking a full shipment on your first go.
I’d also recommend choosing a customs broker who is used to the industry and can help you clear any unexpected hurdles.
‘Incoterms’ from the International Chamber of Commerce (ICC) are a set of rules that define responsibilities of sellers and buyers, including who carries the risk when goods are in transit, who pays for shipping management, insurance, documentation, and the general customs clearing process.
Effectively navigating Incoterms 2020 (the current regime) is important in negotiating international trade as different rules will be suitable for different importing and exporting needs.
For instance, there is a trade-off between the amount of control you wish to have and the risks you wish to carry. Free on Board (FOB) shipping means you take over goods once the supplier has loaded the goods on board of the vessel, whereas Delivered Duty Paid (DDP) shipping means the whole transportation process – including import clearances – is done by your supplier. On the one hand, DDP means your supplier assumes all the risk; on the other hand, it also means your supplier has complete control for the journey.
When exporting, I’d recommend not using DDP shipping, as your company doesn’t want to get involved in other countries’ customs clearance processes. SMEs simply can’t be aware of all customs regulations worldwide.
As we’ve seen in recent years, geopolitical considerations are more of a concern for importers and exporters, so it’s important businesses are across the trade agreements in place and how they’ll affect their product.
Free Trade Agreements (FTAs) are agreements to lower trade barriers – chief among them tariffs on goods. That doesn’t mean that once an FTA between two countries has been signed, trade barriers have been eliminated. Countries will often make exceptions to protect favoured domestic industries – imposing tariffs to protect local potato growers or beef producers, for example.
Be vigilant, get an expert
These are just some of the various considerations involved as SMEs enter into foreign trade. To be aware of the issues is important, but having an expert at your side is vital. With entrepreneurship on the rise in Australia – ticking all the boxes at customs will keep you a step ahead.
At RF Supply Chain Expertise, we have the depth and breadth of experience – and the professional network – to help you with whatever problems come your way.