Customs / Trade Compliance Procedures Flow Chart & Checklist

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CUSTOMS / TRADE COMPLIANCE
PROCEDURES FLOW CHART &
CHECKLIST

NB!! PLEASE READ THE FLOWCHART STAGES, IN COLOUR CODING

TO THE TEXT BLOCKS MATCHING TO THE DESCRIPTION IN

SECTIONS WITHIN THE GMLS COURSE MATERIALS BELOW, AS
REFLECTED, TO IDENTIFY THESE IN RELATION TO THE

CUSTOMS COMPLIANT INFORMATION AT EACH STAGE OF THE
CONTEMPLATED INTERNATIONAL TRADE TRANSACTION.

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This Customs Trade Flow Chart and checklist as provided and set out hereunder will be of
great benefit and assistance in an overview of conducting Trade with relevance to Customs
Compliance requirements, especially in planning a Global Trade transaction.

In order to appreciate the precise and exact logical flow and sequence of Customs
Compliances and Procedures, the below flow chart with numbered and reference steps of
explanation will be of fundamental assistance and guidance.

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These Sections should be read with the GMLS Matrix showing the flow for Customs
Compliance purposes, from time of deemed Import, to Compliance to effect a Customs
Clearance Declaration. A cross-reference to the new and pending SA Customs
Legislation has been indicated, where applicable.

The following diagram serves to illustrate the role and impact of Customs Border
Compliances in all aspects of International Trade.

Customs'in'Global'Trade'

•  IMPORTANTANCE IN SUPPLY CHAIN & INTERNATIONAL TRADE B
•  NO INTERNATIONAL TRANSACTION COMPLETE WITHOUT IT U'
•  AEO & CTPAT PROGRAMS CONTROL AND OVERVIEW OF SUPPLY CHAIN END-TO-END Y'
E'
SUPPLY CHAIN AND INTERFACE TO GOVERNMENT AGENCIES R'

CONTRACT'OF'SALE'

S' GOODS'
E'
L' VOYAGE'
L'
E'
R'
•  PACKING
•  TRANSPORT
•  CONSOLIDATION

• CUSTOMS !!!

•  PORT
AUTHORITIES
•  PORT
AUTHORITIES

• CUSTOMS !!!

•  DE-
CONSOLIDATION

•  TRANSPORT
•  DOCUMENTATION
COSTS'

© 2014 Copyright. All rights reserved. Permission to use the content of 10#
GMLS material must be obtained from the copyright owner. Please
apply to [email protected] for permission.

As you may note, there are many third parties within the Global transaction between
the Seller and the Buyer, yet Customs is relevant at both the Export, and Import side of
the Border!!

In line with the diagram flow chart above, please
follow the colour-coded blocks to see what
happens in each stage of the flowchart.

THE SELLER Page No: 3

1. Recordkeeping
a) Pre-Contract Negotiations
b) Pro-Forma Invoices

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c) Contract of Sale

It is a Customs Compliance requirement that records of all documents need to be kept and
safely retained for a period of five (5) years. In the new Customs Act, it prescribes 5 years as
well as the year in which the transaction took place.

The Customs and VAT Acts are aligned to the Customs Legislation, and in terms of that
Legislation also any business shall keep books, accounts and documents relating to all
transactions for period as may be prescribed by the Commissioner. Five years old and Five
years plus year of transactions.

The purpose of the Legislation is that business accounts, documents, etc. must be available
for inspection. I.T. Systems and Back-up Systems must also be compliant for Customs
purposes.

2. Calculation of the landed cost

a. Customs impacts to landed cost.
b. Origin, Value and Duty all to be assessed.
c. Advanced Ruling for certainty

In order to calculate a selling price for Imported goods, the landed cost has to be calculated
and a possible profit margin has to be added to it.

Customs Duties, Excise Duties, VAT, and other charges need to be calculated accurately,
since these charges are, unlike other charges in the supply chain, not negotiable and they
generally form a substantial percentage of the landed cost. Nobody can afford to incur a
loss!!!

In order to calculate the Duties, one has to be able to classify the goods according to the
WCO Harmonised System of Classification and determine the value the goods for Customs
Duty purposes and determine the country of Origin of the goods. (See the below Customs
Trilogy).

These 3 steps, known as the Customs Trilogy ~Tariff Classification, Customs Value, and
Origin, is also important for other purposes, such as statistical purposes, safety, and security
Classification.

3. Tariff Classification

a. What is the product? (WII – “What Is It?”)
b. Obtain literature and correctly classify the product.
c. Check all Customs impacts, i.e., permits etc.
d. Consider Rulings.

The process of clearing goods correctly and of determining what Customs Duty rates and
other Trade measures, such as Import prohibitions and restrictions that apply to goods,
requires that the Importer or their Agent determine the correct Tariff subheading of the goods.
The current global Legislation is highly focused on self-Compliance.

The goods should be classified according to the HS Code when Importers start conducting
their market research, because it may be possible that goods may not be able to be Imported
at all, due to an Import prohibition or a permit or licence which is not permissible or cannot be
obtained. It does not make sense to conduct a lot of research and calculate landed costs, etc
only to find out at a later stage that you may not be able to Import or Export goods at all, so,
you must know the correct HS Code.

It is the obligation of Importers to make self-determinations on:

Tariff / HS code Page No: 4

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the Customs Value; and
Origin. Clearing Agents need to apply for and motivate Rulings.

It should be noted that Tariff Classification, Customs Valuation, and Origin, as mentioned, is
known as a trilogy and are inter-related (interlinked and interdependent). It is therefore not
surprising that Importers are able to apply for advance rulings on the trilogy to ensure
Compliance. (See Chapter 10 of the new Customs Duty Act).

The Importance of the Trilogy in relation to Customs Control and Trade Facilitation is
underlined by the fact that Article 3 of the WTO Agreement on Trade Facilitation and
Standard 9.9 in the General Annex of the Revised Kyoto Convention provides for Advance
Rulings. This section on Tariff Classification should be read with the Sections on Customs
Valuation and Origin below.

4. Customs Valuation

a. Correct Valuation method?
b. Establish correct Incoterms® rule?
c. VAT and other calculations?

In addition to what is stated about Tariff and Valuation above, it must be stressed that the
majority of goods in the Tariff are subject to ad valorem rates of Duty. In other words, the rate
of Duty is based on a percentage of the Customs Value of the goods. The Customs Value
also plays an important role in the calculation of Import VAT and Excise Duties on Imported
goods.

NB: The Duties and VAT will be incorrect, if the incorrect rate of exchange, or the
incorrect invoice information, is utilised!!!

5. Customs Duty calculation

a. According to Tariff Classification
b. Correct Source documentation
c. Correctly calculated

It has already been mentioned that the Tariff Classification, Customs Valuation and Origin of
goods play and important role in Duty calculation. In addition, other factors such as the mass
of the goods and quantity which also play a role. In this regard refer to specific Duties,
compound Duties and formula Duties to be covered in the advanced Customs e-learning
course.

Customs Duty payment is such an important matter that most Customs and Excise Acts deal
with the matter specifically.

6. Permits (Prohibitions and Restrictions on Imports, including Import licensing)

a. Tariff item will reflect permits etc. required.
b. Be mindful of anti-dumping etc.

In order to determine if goods are subject to any prohibitions or restrictions and permits (if it
may be Imported at all, and subject to which conditions) at time or Importation (or
Exportation), one first has to classify the goods under a Harmonised Tariff subheading. Once
this has been done, one can consult the Customs Authority on their List of Prohibited and
Restricted Goods Index to establish what the requirement for the product is. By doing so, you

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will be able to establish whether or not an Import permit or other Compliance is required from
any government department or organisation represented by the Customs Administration.

If the product is subject to an Import prohibition – such as a permit – it generally entails
registration or application with the regulating body.

7. Origin

a. Take advantage of Trade certificates to reduce Duty.
b. Can impact landed cost with more favourable costings.

Origin is the "economic" nationality/identity of goods in International Trade. There are two
kinds, non-preferential and preferential. These relate to Trade Agreements to which the
country is bound.

Non-preferential Origin confers an "economic" nationality on goods. It is used for determining
the Origin of products subject to all kinds of commercial policy measures (such as anti-
dumping measures, quantitative restrictions) or Tariff quotas. It is also used for statistical
purposes.

Preferential Origin confers certain benefits on goods Traded between particular countries with
which countries have preferential Trade agreements.

In either case, an important element in determining the Origin of goods is their Tariff
Classification. The Importance of providing the correct Certificate of Origin cannot be
underestimated if a lower Duty has been paid.

8. When goods are deemed to be Imported

a. Anything deemed to be Imported must be declared.
b. Place of Entry and relevant documentation and procedure required must be established.

Once goods are deemed to have been Imported in terms of Customs Legislation, Customs
Rules and Laws apply. Then there is a specific time period within which a Customs
Clearance Declaration needs to be performed.

9. Place of Entry

a. Where to clear?
b. Time limits?
c. Give correct and valid information.

The WCO Revised Kyoto Convention (Chapter 3 of the General Annex) provides that goods
may only be entered at designated points of entry.

In line with this, there are designated points of entry specified where goods may be cleared
for specific purposes and during designated office hours.

The designated entry point is the approved places of entry (sea, air, post, road, and rail
Clearances) Report arrival and departure of ships and aircraft etc.

10. Customs Clearance Page No: 6
a. Procedure Code
b. Source documentation
c. Valid and timeous Declaration

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Customs Clearance is one of the most important measures of Customs control and Trade
facilitation. This is when goods are Imported, Duties are brought to account and Trade
statistics are collected. Customs Clearance also serves other purposes, for example to
ensure that prohibited goods may not enter the country, or that restricted goods may only be
Imported subject to certain limits, permits, certificates or licences.

Importers and their appointed Customs Brokers must also be registered, and bonded
premises must be licensed in accordance with the relevant Legislation. (See SAD 500 on the
last page of this document)

All Imported goods must be declared to Customs on a Customs Clearance Declaration/Bill of
Entry/goods Declaration. Customs is alerted that goods will be Imported when they receive a
manifest/Cargo Declaration from the Carrier.

NB: It is important to note that the clearing instructions to be provided to a Clearing
Agent must be accurate and exact in terms of instructions from the Importer to the
Customs Broker/Clearing Agent!!!

If goods are not declared within the prescribed period, the goods will be removed to a
designated State Warehouse where it will remain until the goods are declared properly. A
goods Declaration is a statement made in the manner prescribed by Customs by which the
declarant (Importer/Agent) indicates the Customs procedure to be applied to the goods and
furnish the particulars which Customs require for its application – for Duty assessment and for
the purposes of the Act.

Customs Declarations must be valid. The data (fields) to be included in the goods Declaration
and the cargo Declaration are derived from Trade and transport documents pertaining to the
International movement of the goods, such as the commercial invoice, Bill of Lading, AWB,
Packing List, etc. These documents have to be submitted together with the Declaration to
Customs, and are therefore referred to as supporting documents, or source documents.

11. Clearance documentation

a. True and Correct
b. Clearing Instructions
c. Keeping of Records

Documentation plays a key role in International Trade, and in the preparation of Customs
Declarations. Importers, and their service providers must understand their roles in

International Trade in relation to these documents, and they must also be able to

communicate the roles of Exporters and freight forwarders in relation to the completion or

Declaration of Customs Declarations.

To avoid delays and possible penalties, documents must be prepared according to Customs
requirements which are aligned to International instruments of the WCO and the WTO and
the Customs Act.

The most important information that is required to assist in the preparation of the Customs
Declaration is source documentation. Having the correct supporting documents ready at all
times – and transposing the information relevant to the Clearance of goods correctly to the
Customs Declaration - is important to ensure the smooth flow of goods in the International
Trade transaction.

It is important to note that documents such as Import permits must be in the possession of the
Importer prior to the shipment of goods, this is part of the due diligence and Compliance
check.

It is also important that Importers are familiar with the documents that are required for
Customs Declarations and what their role is in the completion of these documents.

The data fields to be included in the goods Declaration and the cargo Declaration are derived
from Trade and transport documents pertaining to the International movement of the goods,
such as the invoice, Bill of Lading, Packing List, etc. These documents must be submitted

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together with the Declaration to Customs and are therefore referred to as, supporting
documents.

In order to complete a valid and correct Customs Clearance Declaration, and ensure its
acceptance by the Customs Authority, Importers/Agents must be able to identify documents
that are required, interpret the information on the documents, and transpose the relevant
information to the Clearance Declaration.

The clearing instruction is an instruction from the Importer to his Customs Broker and needs
special attention to detail to ensure that Clearance is conducted in accordance with the
requirements of the ACT.

It is important to note that the Clearance instruction (as it is now called) is a Declaration that a
responsible person in the service of the Importer is required to sign, and that the person
signing the Declaration is familiar with all technical aspects relating the contents that are
required to be completed on the Clearance instruction.

Importers should provide their Brokers with the following information:

• An accurate description of the goods.
• The Customs Procedure Category Codes of the goods.
• The Origin of the goods and any Origin determination if the goods (if applicable).
• The Tariff Heading/subheading of the goods and any Tariff determination of the goods
• The Customs Valuation method, and any value determination that may have been put in

place.

• The destination of the goods.
• The Trade agreement, if any, under which the goods are to be cleared; and
• The tax payment method.

It is important to become familiar with these technical aspects and it is clear that all Traders
and Agents require the correct training in Customs matters. You cannot calculate the correct
Landed Costing neither.

12. Customs Procedure Codes
a. Tell Customs how to deal with the goods.
b. Check the Act.

Customs procedures indicate to the Customs Administration how to deal with the goods after
Importation.
Customs Control Acts are arranged to accommodate the treatment and Customs control of
goods according to the Specific Annex of the WCO Revised Kyoto Convention, as follows.

Customs Procedure Page No: 8
Home use of goods
National and International transit

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Excise warehouse transit procedure

Transhipment procedure

Temporary admission procedure

Warehousing procedure

Tax free shop procedure

Stores procedure

Export procedure

Temporary Export procedure

Inward processing procedure

Home use processing procedure

Outward processing procedure

The procedures above are aligned to the Specific Annexes of the Revised Kyoto Convention.
There will be information from the Customs Administration indicating the Procedure Category
Codes (PCC) and Customs Procedure Code (CPC) Combinations, in accordance with which
the Importer or his appointed Customs Broker must declare to the Customs Administration,
what will happen to the goods after Importation. This tells Customs under which procedure
they must treat the goods.
This also could have an impact on the Duty that will be payable at time of Importation.

13. Licences
a. Renew and keep up to date.

Importers and Agents must be registered with the Customs Administration and their premises
needs to be licensed accordingly. Importers and Customs Brokers may be accredited by the
Customs Administration on application, provided they have a proper Customs Compliance
record. Importers and Exporters must have a Customs Code Number.

14. Customs Offences
a. Penalties of contravention of the above
b. Dispute Resolutions
c. Adequate preparation

There are consequences for incorrect Customs Clearance Declarations. If Importers or
Agents are not satisfied with Customs’ decisions, they may appeal against decisions and
make use of dispute resolution methods which are available through the Customs
Administration and Act.
If their Declarations are not compliant the Act, provisions for penalties will become applicable,
and there will be harsh penalties. The Importance of conducting a detailed due diligence in
advance following these guidelines is stressed. Then the goods will always reach the buyer
with full Customs Compliance criteria met. If this checklist is utilised correctly, it will be of
benefit to all Global Traders. NB!! When planning the landed cost, you are dealing with

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Customs Compliance issues ahead of time and not only when the goods arrive at the
Border.

THE BUYER

PLEASE SEE SAD 500 ON THE PAGE BELOW…

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THE END Page No: 11

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