A Brief History of Customs

Posted by Cory ‣ May 20th, 2016

In an increasingly globalized world, it can be difficult to understand the behaviour or even the purpose of Customs agencies. What gave rise to such an institution, and why are its laws so complex? Perhaps the best way to understand the motivations of today’s federal agencies is to examine the history of Customs itself.

Although we tend to think of globalization as a modern phenomenon; the hallmarks of its activity, from free trade zones to duty rates, have been around for millennia. Evidence of Customs activity has been excavated all over the world, from the ports of Ancient Greece to the Great Wall of China.
The evidence suggests that complex systems of controls and taxes on traded commodities were in existence well before industrialization, as well as the reasoning behind them. It was easy to see among small populations that unmitigated dependence on foreign merchandise would in-debt and stress the community.

Scholars believe that the earliest Customs fees were actually voluntary, and offered by travelling merchants as a bribe to sovereigns for considerate treatment. Over time, this bribe became mandatory. It was called ‘duty,’ a fee charged for the privilege of trading in a particular kingdom. The collection itself was outsourced to tax farmers, who would use any means necessary–including violence–to obtain what had become an essential revenue source for monarchies.

The first written Customs tariff was developed in Palmyra (present day Syria) and was engraved in stone (its still there!). Despite its age, the ancient tariff bears a striking resemblance to the modern harmonized system, and included specific duty rates for commodities such as camels, slaves, fleece, and aromatic oils.

Customs Tariff of Palmyra (est. 167 AD)

per camel-load of aromatic oil in alabaster jars, seven denarii at importation and exportation per camel-load of olive oil comprising four goatskin bags, ten denarii at importation and exportation per camel-load of salted provisions, ten denarii at importation and exportation for salted goods carried by donkey, the Customs agent shall collect three denarii per load, at importation and exportation

Canada Customs Tariff (2016)

3301.13.00 00 Essential oils (terpeneless or not), including concretes and absolutes; resinoids; extracted oleoresins; concentrates of essential oils in fats, in fixed oils, in waxes or the like, obtained by enfleurage or maceration; terpenic by-products of the deterpenation of essential oils; aqueous distillates and aqueous solutions of essential oils. – Essential oils of citrus fruit: – Of lemon KGM Free 1509.90.00 20 Olive oil and its fractions, whether or not refined, but not chemically modified. – Other – In container sizes of 18 kg or more KGM Free

Ancient Rome introduced professional customs offices and officers. Similarly to Palmyra’s tariff wall, trade information found on artifacts (imported jars of olive oil) contained inscriptions nearly identical to modern Customs declarations.

Roman-era Customs data	Canada Customs Invoice (current)
port of loading date of shipment name of city where duty was paid weight value order # producer officer who weight the goods amount of duty paid	Vendor (name and address) Date of direct shipment Other references Consignee Purchaser’s name and address Country of transhipment Country of origin of goods Transportation mode Conditions of sale and terms of payment Currency of settlement Number of packages Specification of commodities Quantity Selling price Total weight

A newer concept of Customs as a complex, evolving filter began at the dawn of the industrial age when nations promoted exporting as a powerful tool for national wealth. As trade increased, so did competition, and streams of legislation became a necessity to balance the needs of domestic labour with market forces. Countervailing duty was charged against subsidized products, and anti-dumping duty against unsold surplus. Unbridled attempts to push exports led to a series of trade wars that halted shipping and resulted in economic crashes, revealing the dangers of protectionism. Following the wars, international organizations were established, and an era of (somewhat) transparent cooperation continues to this day.

Despite major advances, the essence of Customs has neither disappeared nor changed. While today’s agencies screen for a variety of novel threats, from security to the environment, protecting the local market is the motivation behind every decision, even if it is not always clear to the importer.

Sources:

SJ de Leat: Portorium (1975)
Hironori Asakura, World History of the Customs and Tariffs (2003)
Douglas A. Irwin, Against the Tide (1996)

---

---

What is undervaluation?

Posted by Cory ‣ March 7th, 2016

“Undervaluation” is one of the most common Customs infractions and one that the CBSA invests a lot of time in discovering. The infraction is an attempt by the importer or shipper to conceal the real cost of a sale so that Customs duties and taxes will be assessed on a lower amount. While undervaluation can take many forms, the least complicated and most common is simply including a fake price on the invoice used for Customs clearance.

The CBSA uses a few methods to combat this scheme. They will frequently ask importers to present a “proof of payment” from a verified third-party (such as a bank or credit card provider) before releasing control of the goods. Should the price initially declared to Customs vary greatly from what was actually paid, Customs will often issue a penalty against the importer and may deny their right to import and seize the goods in question.

---

---

What’s a commercial invoice?

Posted by Cory ‣ February 25th, 2016

What may sound like a novice question to an experienced shipper is really not a dumb one at all. How are you supposed to know that a “commercial invoice” is used specifically in international trade as it provides extra details (such as the country of origin and value for duty) required for customs export and clearance? The adjective “commercial” does not exactly suggest this.

How is it different than a normal invoice?

It’s not, really. An invoice is an invoice, but the amount of detail will change depending on who and what you are selling. If you are shipping abroad, you will need to prepare one, regardless of the situation of the sale. A commercial invoice should have, at least:

• names and addresses of the seller and buyer
  • as well as the consignee if a separate entity
• A description of the product sold
  • as well as its country of manufacture
  • the tariff code, if known
  • an end use statement for uncommon items
• the price of the product
  • date of the sale and any applicable terms (payment, INCO, or otherwise)

A “customs invoice” is similar, if not exactly the same. Apparently some old school merchants would use the term “consular invoice” interchangeably although I have never heard this.

Whats the easiest way to tell if its a “commercial invoice”?

“commercial invoice” is usually written at the top of the page : ) But seriously, any invoice will do as long as the necessary details are provided. You do not need to write “commercial invoice” on it although this does help distinguish it from a Pro Forma or other invoice type.

Can I make my own commercial invoice?

Of course, there is no standard form that must be filled out, although you can find many templates online.

Can I fill out the commercial invoice, even if I am the buyer and not the seller?

Yes, as long as you know the details of the transaction, the importer can fill out a commercial invoice. In this case, we recommend completing a Canada Customs Invoice. Be wary when declaring your value however, as you may still be asked for proof of payment by Customs (proof of wire transfer or credit card receipts) to back up your claim.

But the goods are shipped free of charge? Do I still need to make one?

Unfortunately yes. There are no exceptions and a commercial invoice will still be required at destination. Many couriers have solved this issue by automating invoice production into online pick up requests, but Customs are known to be skeptical of these so its best to attach a real commercial invoice anyway.

I don’t know the price yet, what do I declare?

You may use a Pro Forma invoice to clear customs which will declare the price and terms you agreed to pay the seller. However, if Customs doubts the value or if the actual cost of the goods augments you will need to provide proof (or file a claim if the entry was liquidated).

 

---

---

Importing Coffee into Canada

Posted by Cory ‣ February 24th, 2016

Coffee! The second most traded commodity on the stock market is also one of the most frequently imported.

But how do you get the beans into Canada? and what will it cost?

Importing difficulty	Easy
Classification Header	0901
Duty rate	0%
Tax rate	0% (tax-exempt)
Additional Requirements	CFIA
Shipping method	Ocean freight
Sources	USA, Africa, Latin America, and Indonesia

 

Coffee is a simple and affordable commodity to import. Most raw food and beverages are tax-free under Canada’s Excise Tax Act, meaning that coffee is not only free of duty but also GST. Unlike many other raw food items coffee beans require no permits or licenses, although the beans are subject to the approval of the CFIA.

A rising trend has seen smaller roasters work directly with vendors in countries who farm and produce the beans themselves, rather than buy from larger merchant conglomerates. Whether you are buying vendor-direct in Kenya or ordering from a merchant company, the process is the same:

Once you’ve found a vendor and made your order, you are ready to ship! Most beans will ship in an ocean container due to their weight, and chances are your vendor will arrange this for you. You should have a commercial invoice from your seller and the beans should be packaged in such a way that their country of origin is clearly indicated (most sellers will know to do this). While no duties or taxes will be collected on your cargo, a customs declaration must be prepared. Your customs broker will handle this for you, and can also assist you with the delivery of the goods from the port to your facility. From there, its roasting time!

 

---

---

Everything You Need to Know about Customs Audits

Posted by Cory ‣ February 22nd, 2016

In the early days of international trade, when merchants refused to pay the high duty rates ransomed by monarchs, they were typically whipped or flogged publicly. Customs officers were not yet civil servants. Instead, the practice of tax-farming meant the job of collecting duty was chartered to the highest bidder, typically a private firm with little interest in the welfare of its clients.

Today’s merchants should be happy we no longer live in such a tumultuous era. While the bureaucracy of Customs may be challenging, an importer’s rights are enshrined in law (see the Customs Act) and one can re-determine or appeal any decision made by a Border Services Officer.

Since the current Customs regime is based around expedited clearance, more and more Customs verification activity is taking place in the importer’s premises rather than at the port of release. Combing through books is an easy way for Customs to find lost revenue.

Generally, if you are an importer concerned about their compliance record, here are some easy steps to sleep soundly at night:

• Customs cares about primarily about revenue. This is never directly stated, but the logic is behind every regulation in the Act. If you paid a foreign vendor for something, chances are it was taxable and you should have included it in your customs declaration (a.k.a. a form B3).
• Keep your records for six years!
• Avoid undervaluation: Customs keeps track of selling prices for each vendor and commodity in the world. They know its value and its origin. It is easy for them to discern when an importer has been dishonest about a declaration.
• Keep your sellers honest too: if you seller declare’s less than what was paid for the goods to save on insurance, you–the importer–will be held responsible rather than the shipper. Be sure to buy from sellers with experience in international markets, or to double-check the paperwork for any new vendors you may purchase from.

---

---