Incoterms provide security and transparency in international trade

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Carrying out a purchase and sale operation leads to a real need for the parties to establish clear rules for the negotiation, this in order to avoid inconveniences within the process, under this premise Incoterms are born.

Incoterms are nothing more than the most used international legal instrument in the world when performing a purchase or sale negotiation. It’s established by the International Chamber of Commerce and its use is generalized and accepted for sale contracts throughout the world.

It is important to have in mind that, as all legal regulations, their misinterpretation or application have often led to conflicts or litigation between the parties, that is why understanding their rules and adhering to them is essential when performing a contract.

Today rather than learning how to interpret them, we will talk about their importance in international trade and their latest updates.

What are Incoterms?

It’s the acronym for International Commercial Terms, a concept that groups together 11 international rules created, managed and control by the International Chamber of Commerce. The first date from 1936 and have suffered changes and updates.

Its main objective is both to facilitate the operation of international trade transactions and to establish a set of terms and rules that define the rights and obligations of both the seller and buyer.

Some of the Incoterms that are established in a sale contract are the following:

•          Free Alongside Ship

•          Cost and Freight

•          Carriage and Insurance Paid To

•          Delivered Duty Paid

Since January 1 of this year, the new rules of Incoterms 2020 came into effect.

One of the points that were improved in the Incoterms was a market need in relation to the bill of shipment.

The different levels of insurance coverage in Cost, Insurance, Freight or Transportation.

Includes arrangements for transportation with own means, delivered duty paid or delivery at terminal.

Includes the requirements for Cost, Insurance and Freight, among others

With the correct use of Incoterms, companies have confidence in the interpretation of the terms of negotiation between the buyer and the seller, since international rules are applied which help to define in detail the distribution of obligations between the parties, making a direct reference to the transport that is used and to the place where the documentation is delivered, as well as the procedures, expenses and payments that must be sent.

Types of Customs Regimes

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If you are interested in entering the world of import or export this article it’s for you, because one of the things that you should consider if you decide to start in international trade are customs regimes.

Before going into detail on the matter of Customs Regimes, it’s important to have in mind that this corresponds to the part of the international legal framework for merchandise marketing. 

And, arises as a need to inspect or control everything that is imported or exported from one country to another, its characteristics depend on each one in particular and are adjusted to the rules that regulate international operations, however, to have better idea let’s define it.

What are Customs Regimes?

According to European Union Regulation 952/2013 of October 2013, Customs Regimes are defined as the set of steps and operations that are carried out related to a specific customs destination, when you want to import or export a specific merchandise.

So we could say, customs regimes are necessary so that the control of goods entering and leaving a country is carried out in accordance with international trade laws, there are basically six types:

  • Definitive Regimes: 

Corresponds to the final calls, it’s divide into import and export.

Definitive import regime: is what happens when foreign goods has the purpose of remain in the country for unlimited time and the general import procedure is carried out.

Definitive export regime: this customs regime consists of the departure of goods from the national territory for an unlimited time. 

  • Temporary Regimes:

It’s when the goods that enter the country remain in it for a limited time and with a specific purpose. Temporarily imported merchandise.

• Tax deposit:

The tax deposit allows individuals to keep their goods stored as long as they need it and as long as the storage contract exist and the service is paid for.

• Transit of goods:

Local: is the transfer of merchandise under fiscal control, from one national customs office to another.

International: it is the transfer of goods under fiscal control, from one international customs to another through our country.

• Preparation, transformation or repair in a fiscal area:

Is the entrance of foreign or national merchandise to a fiscal area, for its transformation, preparation or repair, either to be returned abroad or to be definitively exported.

• Strategic fiscal area

Is the entry of foreign, national or nationalized merchandise to strategic fiscal areas for a limited time, so it can be handled, stored, guarded, exhibited, sold, distributed, transformed or repaired.

If your company requires support, international transport of goods, or if you want to start in international trade, consider hiring qualified staff who knows all the legal regulations required, so that you have good results.

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Merchandise value and its importance for international trade

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One of the main challenges that arises in the customs sector when processing merchandise resulting from an import is determining the customs value or the value of the transaction.

The proper application of this evaluation procedure allows promoting both the fluidity of trade, as well as the transparency of operations and the economic growth of the country.

Who is responsible for evaluating or determining the value of a merchandise?

The authority in charge of determining this is basically the Technical Committee for Customs Valuation of each country, which is made based on a number of regulations and procedures, the customs value of each merchandise.

The methodology to establish said customs value for imported merchandise subject to tax rates is established in the Agreement Relating to the Application of Article VII of the General Agreement on Tariffs and Trade of 1994.

Every country member of the

have an obligation to implement the Agreement and apply this methodology. Those who are not members also choose to adopt it making it applicable to most international trade.

The same is established according to the sum of three fundamental elements:

1- The value of the merchandise

2- Amount of insurance.

3- The cost of freight.

For what purpose is this measure applied?

Regarding international trade, guidelines or mechanisms have been developed to promote the principle of free competition using international standards of cooperation between companies and tax authorities that allows establishing the profit margins of most companies worldwide.

The customs value of imported goods is used for the following reasons:

• As a basis to determine the customs tax obligation for imported goods when ad valorem taxes apply.

• The classification of customs duties and the preferential origin are other key elements necessary to establish the tax obligation.

• Valuation, classification and origin are also vital for international trade statistics.

Currently, the World Customs Organization is working together with the Organization for Economic Co-operation and Development and the World Bank Group to encourage Customs and tax administrations to establish bilateral lines of communication in order to exchange knowledge, practices and data, when possible, which would help to ensure that each authority has the widest possible vision of a business, its compliance record so they can make informed decisions on the correct tax liability.

Establishing the value of imported merchandise is a starting point of what the final price of the product will be to the consumer from which the profit margins of the company that performs said import operation and consequently its tax responsibilities will derived; that is the reason why it is important that governments and companies are able to adhere to the regulatory frameworks established in this matter.