Understanding the E-Commerce Customs Landscape

As we are all aware the widespread ability to commercially transact over the internet has been economically transformative. Greatly expanding the market-place for businesses worldwide, including for those companies supporting the tremendous resultant growth in cross-border goods movements, logistically. This rapidly evolving dimension of global commerce presents fantastic new opportunities for profitable business, for those companies that understand it and can adapt to what is required to succeed.

Part of this is about knowing what is required when a business is generating movements of consignments across international frontiers. It needs to embrace the difference between domestic and international transactions, making sure it is aware of, and complies with, those aspects of the international trade regulatory framework relevant to its operations.
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The extraordinary growth in the volume of - typically relatively low value - internet e-commerce platform generated, time sensitive, shipments to private individuals has challenged international trade norms, forcing them to evolve, and has intensified the tension in the interplay between states’ need to regulate, control and protect, and the desire of businesses and markets to be able to operate freely, to swiftly serve customers wherever they are.

The Main Trade Challenges for E-Commerce Companies

Customs Requirements and Border Formalities

For e-commerce companies seeking to meet the demand of large numbers of customers in a number of different countries, dealing with customs requirements, and ‘getting it right’ consistently over time is perhaps the most challenging of all the issues faced. Whilst many principles and general rules will be in common, each country / jurisdiction tends to operate to its own version of these in relation to customs and the admissibility of products to their market. Even where there is a level of commonality, for example, the European Union’s Single Market, or the World Trade Organisation’s (WTO) legal instruments, such as the Customs Valuation Agreement, interpretation and/or procedural implementation of the rules can still differ from place to place.

Joined-up Operations

To avoid costly consignment delay, dissatisfied customers, and legal fines / penalties it is critical that the relevant business units of e-commerce companies selling internationally are joined-up operationally, and are across-the-detail of customs and international trade compliance. In a business sector where timely delivery is so important, investment in the building of the capacity to confidently trade compliantly across borders can pay dividends in the contribution it can make to problem free customer experiences, enhanced company reputation and perception, and the generation of repeat orders. In this regard, it should always be remembered that remote direct to end consumer (D2C) sales involve delivery to private individuals with little or no familiarity with customs formalities.

Supply-Chain Vulnerability

International supply-chains are vulnerable to changes in the international trade environment and rarely more so than today. So, company expertise needs to be developed internally, or through working with good quality business partners, for example advisers, customs brokers, freight forwarders, and local market fulfilment companies, to enable the company to know and properly understand its markets and to keep abreast of developments, in terms of their official procedural and customs requirements. Not to mention any opportunities to trade more cost-effectively, for example, by using free trade agreements where possible, and/or useful customs regimes, such as de minimis duty relief, among others. Also, a horizon scanning, intelligence gathering capability needs to be in place within the business to pick up on potential issues (e.g. tariff changes) before they happen, anticipate possible impacts, to mitigate and respond in a timely manner and to adapt to the changes afoot. It seems that developing such supply-chain resilience and agility has never been more important than in today’s volatile international trade context.

Control

The impact of extended distance and of the regulatory requirements to access markets internationally can serve to diminish a company’s ability to control the service quality of the delivery of its product(s) to its customers abroad. The means that are available to address this depend on the quality of customs and international trade expertise the business has access to. For example, to enhance control over its international sales fulfilment it is important that it is knowledgeable of what needs to be covered in associated contracts and agreements, of using international commercial terms correctly, and of which processes, procedures and attendant documentation are relevant.

Control over route to market and to final customer can also be improved by partnering with the right companies when developing or reviewing supply-chains. Ones for example, that increase consignment(s) visibility and traceability for the company and its customers (especially in respect of the final miles), or which provide the business with reliable local ‘eyes and ears’ and relationships that can be tapped in key markets. The latter can be particularly important when dealing with customs and border formalities, unexpected charges, and when managing the significant proportion of returns that tend to be associated with e-commerce.
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The Challenge for Regulators

Just like business, national authorities have had to adapt to this revolution in international commerce, seeking to deploy their limited public resources as efficiently as possible to regulate, control and protect. That is, looking at ways of capturing the economic benefits and tax revenues generated for society by e-commerce, whilst mitigating and minimising the risks and ills associated with non-compliance.

In the best examples the border agencies, typically led by customs, use advanced risk management techniques and systems to continuously adjust the balance they must strike between trade facilitation, regulatory enforcement and security. Nevertheless, there is a sense of their being overwhelmed by, or scarcely keeping pace with, the volume of internet e-commerce platform generated shipments entering their countries, being delivered to private individuals unused to customs formalities and the duties / taxes for which they may be liable. This is leading to new initiatives to enable the maintenance of control by national authorities, at an acceptable cost, whilst still allowing trade to flow reasonably freely.

Regulatory Initiatives in the USA

In the USA measures have been put in place to tackle the apparent abuse of the de minimis exemption used by the many millions of low value shipments (U$800 or less) entering the USA each year generated by China founded e-commerce platforms. The concern being that the type and volume of shipments entering the U.S. claiming this exemption, violate health and safety rules, intellectual property rights, and product standards, or seek to circumvent trade rules, or anti-smuggling measures, which is said to be putting Americans at risk and undermining their local employment and businesses. Part of the remedy, is for an enhanced customs entry process, based on systematically requiring more advance pre-arrival shipment data in respect of the contents, origin and final destination of such shipments en route to the USA, for risk profiling and targeting purposes.

Global Guidance from the World Customs Organisation

For its part the World Customs Organisation has provided some ‘tools’ for the use of its member national customs administrations to address the massive growth in e-commerce over the past ten years or so. These include a number of global standards and operating principles in respect of cross-border e-commerce around obtaining advance electronic data, risk management, trade facilitation, capacity building, safety and security, and legislative frameworks, among others.

The European Union’s Response

In the EU the Commission has proposed a number of actions and measures to better manage e-commerce shipments entering the single market (see here) these include: removing the duty exemption for low value parcel shipments; improving surveillance of products that pose a threat to personal safety; use of initiatives such as the digital product passport and artificial intelligence tools to monitor and supervise e-commerce platform marketplaces; environmental measures; and upholding trade policy measures to counter unfair trade practices e.g. dumping and subsidies.

The EU Commission has also proposed that online marketplaces and sellers be given deemed importer status, with the responsibility for goods compliance and for collecting the applicable import duties and taxes due, on behalf of the authorities, providing the latter with consignment data at the moment of the sale, prior to the arrival of the goods at the EU border. In similar vein, the EU Commission is also ready to explore the idea of introducing a handling fee on e-commerce items imported in to the EU directly to consumers, to address the scaling costs of national customs administrations supervising the compliance of such consignments with EU rules. The fee to be incurred by the importer i.e. the online retailer or intermediary benefitting from such commerce, to pay for the customs clearance management resource needed for the huge number of individual parcels they generate.‍

Get Expert Support for E-Commerce Customs Compliance

However international e-commerce and its regulation evolves going forward, BKR is ready to support your business in helping to develop agile and pro-active strategies through which to manage risk and to embrace and profit from anticipated change in this exciting and dynamic sector. Get in touch to find out how we can support your business in this area.

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‍‍This article was written by Christopher Starns, Customs & Trade Advisor (BKR Consultants Limited).