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Excerpt on preference compliance tips from Practical Guide to SAP GTS Part 2: Preference and Customs Management.
Claiming of preference
It is a generally true statement to say that preference agreements and claiming preference status are voluntary things. You typically never have to claim preferential status. Most customs regulations allow for importing general goods without special status. For members of the World Trade Organization, this typically is referred to as claiming the Most Favored Nation (MFN) tariff.
That said, most companies are going to claim preferential status at some point, typically to reduce their duty obligation to the importing country. Furthermore, their customers may demand of them the preferential status of the product, forcing them to offer information they might otherwise not need to in order to stay competitive.
If in doubt, do not claim preference
Whatever the preference agreement in question (NAFTA, Generalised System of Preferences, etc.), never claim preferential status unless you are sure. This is sound advice in general, but in some cases, such as with NAFTA, you are obligated to complete the determination check before you claim. By signing a certificate of origin falsely, you could be committing a serious offense.
To illustrate, Figure 1.46 shows the penalty scheme available to US Customs should you be found to issue a false certificate of origin (from 19 U.S.C. 1592(c)).
Figure 1.46: Customs statutory penalties
As you can see, the penalties can be quite severe. For example, let us assume that you were found guilty of mere negligence when you claimed NAFTA on your product and so avoided $1,000 in duties. The penalty will be $2,000, as well as the requirement to pay the duty originally owed. This is only for one transaction; you can be sure that customs will consider auditing other shipments, and this could quickly become a large problem.
Also, keep in mind that this is if they deem you merely negligent. If they consider your actions fraudulent, the penalties are much higher.
Furthermore, most FTA allow for claiming of preference after the fact. For example, you may pay the MFN duty up front and then recover the duty later after you have had a chance to prove the preferential status.
The large penalties and generous post-import refund allowances really leave no excuse for ever claiming preference if you are not certain. Fortunately, you can be certain by properly using SAP GTS!
SAP Global Trade Services (GTS) helps companies maximize supply chain performance and reduces the overall cost and risk of global trade by ensuring regulatory compliance, accelerating trade activity, and enabling trade compliance automation. The Practical Guide to SAP GTS Part II dives into customs management and preference processing. Explore how to leverage self-filing, and minimize risk when using a customs broker model. Maximize ROI through the adoption of free trade agreements. The book is current to version 10.1 and explores version 11.0 and its new features including Fiori apps and UX. Includes tool to help you calculate ROI for Preference Management.
About the Authors:
Rajen Iyer is the co-founder and CTO at Krypt, Inc., one of the fastest growing global trade and supply chain solution providers. Rajen is a recognized thought leader and has published articles and best-selling books on SAP Logistics and GTS. Kevin Riddell is the International Logistics Manager for Tremco Inc. Kevin is recognized as a GTS user subject matter expert and is a regular speaker at SAP and trade compliance events.