(This is the first of a two-part series.)
The massive growth in international trade and the proliferation of regional and bilateral trading agreements have made international trade and customs law a highly specialized and complicated field particularly for the trading community and those engaged in cross-border exchange of goods.
In the Philippines, most importers pay more taxes to customs (indirect taxes) than to internal revenue authorities. This has a direct influence on the bottom line or operating profit of the company since the landed cost of importations (which includes customs duties and taxes) has a direct impact on the goods’ selling price in the domestic market.
We have outlined below what traders need to know to effectively manage their imports and exports.
Understand the International Trading Environment. Globalization has changed how companies source materials and sell products. Regional markets have opened and tariffs have fallen; international trading rules have become more complex. The advent of numerous free trade agreements and advances in online technology have greatly impacted the supply structures and sourcing strategies of companies.
Managing international trade requires multiple skill sets and integration of customs and trade understanding. While globalization has opened trade opportunities, competition has heightened and supply chain risks must be managed to prevent disruption across international borders.
Many rules relating to customs valuation, rules of origin, duty preference, tariff classification, and supply chain security are based on international agreements. To date, the Philippines has entered into at least 38 bilateral and regional free trade agreements (FTAs) and memorandum of understanding with various countries and regional groups with the view to expanding the country’s trade and economic relations. In addition, the country is engaged in the negotiation or implementation of numerous bilateral and regional (and cross-regional) agreements.
Trading companies have to understand the dynamics of both the domestic and international markets. Understanding the benefits of free trade agreements can result in duty privileges for both imports and exports. For importers, this can result in lower landed goods and for exporters, more sales arising from the lower costs and from gaining access to export markets. Understanding the role of free trade agreements and free zones (free ports and export processing zones) can help traders maximize trade opportunities in the global market.
Learn the Basics of International Purchasing and Supply. Traders engaged in cross-border trade should ensure they are able to efficiently purchase the right product or service at the right time and place in the most economical way possible and based on the needs or requirements of the customers.
A company’s purchasing objectives may refer to lower acquisition prices, extended credit line, decreasing lead time, reducing clearance and delivery costs, and the provision for value-added services.
Securing market information on the prices of goods will involve consideration of factors such as historical costs, quotations from other suppliers, reference prices, pricing and costing trend and expert estimate. Assessing a prospective supplier will require a review of the supplier’s capabilities and strategy by looking at their technical capabilities, financial situation, value-added services, management capabilities, business processes, compliance and risk standards, industrial relations, reputation, track record and network.
While cost is the main driver for choosing a supplier, the increasing scope and complexity of trade encourages companies to take a closer look and assign importance to other factors when purchasing goods, i.e., technical and financial capabilities, technology support (e.g., information and communication technology solutions), management expertise and the value-added services.
In short, importers and exporters will need a working knowledge on how to specify supply requirements, obtain offers, select suppliers and manage vendors.
Agaton Teodoro O. Uvero is an international trade, indirect tax (customs) and supply chain practitioner. He is the Editorial Board Chairman of Asia Customs and Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. For questions, please email him at firstname.lastname@example.org (www.customstrade.asia).