Customs Departments are the government designated authority to implement the policies related to import and export, collect customs duties and facilitate movement of people, goods, and cargo into and out of the country.

Area of Operations and Authority

Customs departments have offices at all seaports, airports and border gateways that are essentially the exit and entry points for people and cargo movements into and out of the country.

Customs agencies are empowered to make arrests, confiscate goods and enjoy powers similar to that of police departments.

Customs and Trade Logistics

Every country annually publishes its policy for Foreign Trade, which stipulates the conditions under which goods and services are eligible to be exported or imported. Customs departments implement the provisions of the policy under customs rules, regulations and tariffs.

Imports in many countries may be allowed freely, or some categories may be permitted with due licenses. Many items are also published as banned for import and not allowed entry into the country.

All of the items imported into the country have to be custom cleared. This applies to the items brought in as personal effects and also imported by trade and business establishments including governmental and defense agencies. Necessary stipulated duties would have to be paid before the goods are released by Customs.

Cargo imported into the country from any point of entry is warehoused at Customs bonded area under customs jurisdiction until it is released after clearance.

The Customs Clearance Process

Customs clearance involves valuation of the goods for their authenticity, in terms of both physical inspection and value assessment. Customs inspects the documents submitted to ascertain that the valuation on the Commercial Invoice is on par with international markets and approves the assessment based on appropriate classification. Once the consignment is assessed and the valuation determined, the demand for duty is made on the importer. On receipt of duty payment, the consignment is released out of the Customs bond.

The entire process of imports is governed not only by Customs Laws, but all imports are also required to be compliant with other relevant boards and bodies — such as the Food and Drug Administration, Department of Agriculture, and Fisheries and Wildlife Department — depending on what is being imported. While the import consignment is in the custody of Customs, the rest of the tests and approvals from these bodies would have to be acquired before Customs can release the consignment.

This process can take anywhere from one day to seven days depending on the case. Customs Rules typically permit a free bonding or warehousing period of three to seven days, which varies from country to country — air shipments are usually given only three days for clearance, while sea shipments are given up to seven days of free warehousing. If the consignment is not cleared within the free period, it starts accruing demurrage on a daily basis, which the importer would have to pay before the consignment is cleared. Demurrage can prove expensive, which makes both timely documentation and an efficient clearance agent important.

The Clearance Agent’s Step-by-Step Workflow

With the standardization of INCO Terms and documentation, a clearance agent typically works through the process in a defined sequence, starting well before the cargo even arrives:

• Pre-clearance document preparation. As soon as the consignment is dispatched from the country of origin, the clearance agent begins gathering the required documents from the importer and the forwarding agent, and prepares the Bill of Entry — the key document on which Customs approves valuation and clearance.
• Electronic pre-filing. The Bill of Entry, along with the commercial and transportation documentation, is filed electronically from the clearance agency’s office and registered with the Customs Department, often before the consignment lands.
• Physical inspection and valuation on arrival. Once the consignment arrives at the Customs Bond, Customs carries out physical inspection and valuation — confirming the correct description and classification of the items, checking for under-invoicing, and arriving at the duty payable.
• Duty payment and coordination. The clearance agency advises and coordinates with the importer to make the necessary duty payment within the free period, to avoid demurrage.
• Delivery. Once duty is paid, the agent takes physical delivery of the consignment from Customs and delivers it to the importer at the designated place, along with the full set of original documents.

This advance-filing approach is what allows most consignments to be cleared within the free period rather than accruing demurrage — the paperwork is largely settled before the cargo even reaches the bonded warehouse.

Imports and Customs Clearance

Freight Forwarders who coordinate international transportation also provide customs clearance services to clients. This activity is called customs brokerage.

Customs clearance work involves preparation and submission of the documentation required to facilitate exports or imports into the country, representing the client during customs examination and assessment, payment of duty, and taking delivery of cargo from customs after clearance along with the documents.

Customs clearance agents — also called Carrying and Forwarding agents — are registered and licensed by Customs to operate. To hold a Customs Clearance License, an individual is required to have passed the Customs Test and Examination, and must be fully conversant with Customs Laws, Rules and Processes to ensure adherence to them. Their role is limited to acting on behalf of, and representing, clients as third-party agencies engaged in customs clearance.

Customs Agents are linked through EDI with customs in most countries and use documentation software to facilitate the entire process.

Key Documents Required for Customs Clearance

Some of the documents involved in customs clearance are:

• Exports Documentation: Purchase Order from Buyer, Sales Invoice, Packing List, Shipping Bill, Bill of Lading or Airway Bill, Certificate of Origin and any other specific documentation as specified by the buyer, or as required by financial institutions, LC terms, or the importing country’s regulations.
• Imports Documentation: Purchase Order from Buyer, Sales Invoice of supplier, Bill of Entry, Bill of Lading or Airway Bill, Packing List, Certificate of Origin, and any other specific documentation required by the buyer, financial institution, or the importing country’s regulation.

Customs Agents prepare the Shipping Bill document in-house for submission, while the rest of the documents are obtained from the client. Preparing the shipping bill involves classification of cargo under a specific classification, which is a critical activity in the entire process.

In effecting imports and exports, the availability of the right documents, the correctness of the information in them, and the timeliness of submission determines the efficiency of the customs clearance process. Any delay in filing or non-availability of documents can delay the process, causing the importer to incur demurrage as well as lose business opportunities. Four of these documents are worth understanding in more detail, since they carry most of the weight in the clearance process:

1. Commercial Invoice

   This is the most important document that certifies the sale and gives the description of the items as well as the pricing or value of the cargo. Customs valuation is based on the value reflected on the Commercial Invoice — Customs verifies the rates charged and can question them if it has sufficient cause to believe the invoice is under-valued to avoid duties, or that the rates aren’t in line with international market rates.

2. Packing List

   It is mandatory to put shipping marks on all cargo, covering each individual piece or parcel. The Packing List catalogues the number of parcels in the consignment, their dimensions, the shipping marks, the gross and net weights of each parcel, and the number of units contained in each. It is used to identify parcels as belonging to the particular consignment under the said invoice.

3. Certificate of Origin

   Certain bilateral and multilateral agreements carry favourable tariffs for import duties. When a consignment is exported from a member country under such an agreement, the designated Export Agency issues a Certificate of Origin for submission to Customs, which classifies the cargo under the specific schedule based on this certificate. The Certificate of Origin also helps prevent third-party countries from routing imports through member countries to avoid duty, quantity, or license restrictions.

4. Bill of Lading or Airway Bill

   The Bill of Lading is a negotiable, multi-modal transport document issued by the Shipping Line certifying carriage of the cargo under the specific invoice, on behalf of the exporter or importer depending on the terms of sale. An ’On Board Bill of Lading’ signifies that the cargo has been loaded on board the vessel or ship, and is one of the documents required for payment negotiation between importer and exporter.

   The Airway Bill is the equivalent negotiable transport document issued by an airline or a freight forwarder consolidating airfreight cargo. In the case of road carriage, the transporter issues a negotiable Way Bill covering the shipment. Depending on the mode of transport, one of these documents is required alongside the Commercial Invoice and Packing List for customs clearance.