SUPPLY

CHAIN

5.CUSTOMS AND COMMERCIAL DOCUMENTATION

5.1 INTRODUCTION

Within the supply chain there are freight operations. In order to carry out these
operations, good commercial relations between the buyer and the seller are necessary.
Thanks to them, different phases of the process are executed successfully.

Every negotiation between two parties requires guidelines to establish a good

framework of understanding. However, a number of problems may occur in many
international operations between countries governed by different laws.

The export of goods must be carried out by customs enclosures authorised by the
Member State country. Any merchandise may be subject to controls by the Customs
Authorities. Optimization of customs should speed up the logistics flow, reduce costs,
and optimize the quality of the service.

The International Chamber of Commerce (ICC) defined the Incoterms as a series of

standards used internationally to interpret the terms of trade relations. Their purpose
is to avoid disputes over the responsibility for risks and costs of operations.

5.2 CUSTOMS

The concept of customs refers to a defined and limited space used to locate goods that
have previously been authorized by the Customs Authorities of each State. This space is
recognized as a Customs Enclosure, and its main functions are to:

✓ Apply the rules stated by the country’s trade regime.

✓ Verify the goods that enter or leave the customs physically, quantitatively and
qualitatively.
✓ Raise taxes and rate of goods.

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There are different types of Customs Enclosures depending on their location:

- Maritime: if it is located in seaports.

- Air: if it is located at airports.
- Border: located on roads or railway lines, next to another country.
- Interior: Interior different points to the borders of the country, with the
aim of speeding up the goods traffic.

These may be:

- Seaports.
- Airports.
- Inland road transport terminals.
- Inland rail terminals.
- Free Warehouses.
- Custom-free zones.
- Temporary warehouse.
- Other approved venues.

From January 1, 1993, the 12 countries that were then part of the European Community
(currently composed of 28 countries) created the so-called Community Internal Market
which is characterized by allowing the free movement of people, goods, capital and
services. As a result, the Community Customs Union was created.

The establishment of the Common Market introduced a series of changes that affected
the commercial activity of Economic Operators:

✓ The disappearance of the internal borders of the States, and the creation of a
single common external border against third countries.
✓ Application of a Common Customs Tariff (TARIC), identical for all members,
against goods from third countries.

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✓ The entry into force of uniform customs legislation for all Member States: the
Community Customs Code.
✓ The application of a Common Commercial Policy of the European Union with
third countries.

5.3 CUSTOMS DOCUMENTS

▪ Single Administrative Document (SAD): a document that ensures compliance

with the customs formalities required for merchandise exchange operations. It also used
for the tax declaration and information support.

▪ Export: a document that authorizes the exit of the merchandise to its final
destination. Even if the export is temporary, a SAD document is needed. There are two
types of procedures depending on the value of the merchandise:
- Low value: refers to non-commercial goods whose value does not exceed
€150 or its weight is less than 20kg. In these cases it is not necessary to deal
with SAD export and the airline will issue a registration or manifesto of low
values that are sent to the customs office for review.
- High value: refers to non-commercial goods with a value exceeding €150 or
weighing more than 20kg. A SAD export is necessary.

The Customs Office of export, for example in Spain, receives information related to the
clearance of goods being carried out and designs a response system to regulate the exit
of goods.

There are three procedures for the authorization of exports:

- Green: for shipments of low value, whose manifesto has been reviewed at
the Customs Office and the shipment of the merchandise has been
authorized.

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- Orange: the clearance of goods is authorized, but with export documentary
inspection.
- Red: when the customs authorities impose a physical and documentary
inspection of the merchandise.

▪ Import: when merchandise arrives at customs in a country, it is necessary to
proceed to the act of nationalizing the merchandise by making a declaration and issuing
a SAD importation. As with exports, the goods are classified as low value and high value:

- Low value: all goods whose value is less than €22 or that weigh less than
15kg. In this case, the recipient will not have to pay tariffs for this import, nor
will it be necessary to have the SAD, since there is an automatic certification
of the customs clearance.
- High value: non-commercial goods with a value exceeding €22 or weighing
more than 15kg. In this case, it is necessary to issue the import SAD, as well
as pay the corresponding VAT and relevant fees.
Certain products, regardless of the declared value, will always be considered
high value. These are: drugs, tobacco, alcohol, food and textile products from
Asian countries.

Customs analyses and classifies the SADs, and establishes three possible clearance
destinations:

- Green: no review by customs is required, the SAD import is enough.

- Orange: when customs wants to check the documentation of the goods to
verify certain data.
- Red: when a physical assessment of the goods is required by the customs
authorities.

The main risk indicators that are taken into account for SAD import control are the
following:

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✓ Origin of the goods: goods from countries where intellectual property rights are
violated. For example, the declared origin does not correspond with the real one
or if the origin of the goods certificate is false.
✓ Documentation: some data related to the merchandise can be confusing,
contradictory, or incomplete.
✓ Value: the declared value of the goods does not match the description of the
content, weight, or volume.
✓ Classification: if there is an incorrect tariff classification.

▪ Certificate of origin: this is the document that determines the origin of the
merchandise, in order to apply the customs duties and to supervise the tariff quotas
granted to imports from a specific country. It assures the import customs authority that
the described merchandise has been manufactured or produced in the country
indicated as origin.

- Issuing entity: the certificate needs to be accompanied by the official form,

which is issued by the Chambers of Commerce of the area in which the sender is
located. The Certificate of Origin is a very useful mechanism for the control of
goods entering free trade zones. The period of validity is 5 months from the date
of issue.
▪ Consular invoice: a document in which the consignor certifies the origin of goods
as well as the payment of a certain amount in the Consulate of the destination country
of the goods.
In many cases the consular invoice involves the advance payment of some customs
duties which facilitates the customs clearance when the goods reach the country of
destination. As a result, a reduction in customs duties may be given to the recipient.

The consular invoice consists of:

✓ information about the sender and the receiver.

✓ a description of the articles included in the shipment, value and weight.

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▪ ATR-1 movement certificate: a certificate granted by the European Union for the
reciprocal trade with Turkey.
- Time of issue: this document is issued when the goods are going to be exported.
- Issuing body: the customs authorities of the exporting State have to endorse an
ATR-1 document.
- Presentation: an ATR-1 must be presented at the office of the State of import,
along with the SAD, within three months from the date of endorsement of the
customs office of export.
- Purpose: this document needs to be presented so that goods can qualify and
benefit from the preferential tariff regime with Turkey.

▪ Phytosanitary certificate: this certificate guarantees that products of plant
origin are free from parasites or diseases that can spread among the vegetation of the
destination country. Its main objective is to fight against pests.

- Issuing body: a Phytosanitary Certificate in Spain is accredited by the Ministry of

Environment and Rural and Marine Affairs, the Departments of Agriculture of
the Autonomous Communities and the Ministry of Health and Consumption.
Under no circumstances should its validity exceed 60 days.

ATA Carnet: a customs document that allows temporary importation and exportation
without payment or guarantee of customs duties. These goods have to be re-imported
to the country of origin within the time limit set at one year. Since not all countries have
adhered to the ATA system, it is essential to consult in advance.
- Issuing body: issued by the Chambers of Commerce.

▪ EUR-1: a supporting document of the preferential origin, granted by the
European Union, applying to countries with which it has a preferential agreement.

It is used in trade with: Morocco, Algeria, Tunisia, Egypt, Jordan, Syria, Lebanon, Israel,
Serbia, Bosnia, Macedonia, Croatia, Norway, Switzerland, Iceland, etc.

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- Time of issue: issued at the time of export of the goods.
- Issuing body: the European Union is the body responsible for issuing EUR-1 for
those countries with which it has preferential agreements.
- Presentation: the EUR-1 must be accompanied by a SAD export and needs to be
validated by the customs office of exit.

5.4 TRANSPORT DOCUMENTS

▪ Air Waybill
It is the main type of document used in air transport. It regulates international air
transport between the two countries that have ratified the Warsaw Convention and its
subsequent amendments.

The air transport document is not a document that gives the right over the goods, but it
gives the right to claim the goods with a simple identification. It is a contract between
the sender and the company carrying the goods.

▪ There are two main types:

- Airline air waybill: it shows the air transport company that will carry out the
transport service.
- Neutral air waybill: it does not show the name of the airline that is
responsible for transporting the goods.

▪ Its characteristics:
✓ it is nominative, in other words it cannot be negotiated.
✓ it does not grant any power over the goods.
✓ it allows claiming the goods.
✓ it describes the existence of a transport contract: transport conditions,
receiving the goods, etc.
✓ it gives details of the goods’ basic data: weight, volume and packages,
packaging dimensions.
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✓ it is a safe and reliable certificate.

In each air waybill there will be three originals and at least six copies for the parties
involved in the operation: consignor, consignee, airline, air cargo agent, successive
transports, in case they exist, and the destination airport.

The data found in the air waybill:

✓ Departure airport, route and destination airport.

✓ Name and address of the airline responsible for transport.
✓ Name and address of the consignor and the consignee.
✓ Method and form of payment.
✓ Insured value of the goods and the amount of the premium.
✓ Specifications of goods and, if needed, instructions for handling.

▪ Bill of Lading (B/L)

International maritime transport document that states that the shipper has delivered
the goods on board the ship and that he is the holder of the merchandise during its
transport.

By means of this document the captain of the ship agrees to transport and deliver the
merchandise to the port indicated by the shipper. This document is delivered by the
shipper and serves as proof of the shipment of the goods under the conditions that
appear in each step.

It is a negotiable document that can be used to transfer the ownership of the goods to
another person. On the other hand, it serves as a receipt for the shipment when the
goods are delivered to the destination. Finally, it is also understood as a promise by the
carrier to deliver the goods to the receiver.

This process consists of the following steps:

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- First, the shipped goods are received and then a certification of their status is
made on board.
- Secondly, the contract of transport is made, regulating its conditions.
- Finally, a title document is obtained, negotiable and admitted by the banks in
the documentary credits as a representation of the merchandise. It is a valuable
title that proves the ownership of the shipped goods and allows the holder to
be in charge of them during the journey.

The data found in the Bill of Lading:

- Name and address of the shipping company responsible for transport, the
shipper and the addressee.
- Name and nationality of the ship that transports the goods.
- The port of departure and destination.
- Specifications of the goods.
- Instructions for the payment of freight.
The B/L is composed of two or three signed originals and a number of copies which are
unsigned. Each original is negotiable, but copies are not.

These are the three possible responses to the B/L:

a) Clean B/L: a certificate of shipment that establishes that the batch of goods is in
good condition when it is delivered on board. At this time the carrier takes on
the responsibility for delivering the goods in the same condition to the receiver.
Certain banks only accept this type of shipping certificates.
b) Dirty B/L: in this case the carrier does not accept the clean B/L. This document
specifies the reasons why the goods have not been accepted. Some common
examples are: inadequacy of packing, incomplete merchandise, damage, etc.
c) Said to contain: in this case the transport of the merchandise is carried out in
containers; consequently, the carrier cannot review the contents. This document
includes a clause to prove that the contents correspond to what the owner
described.
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▪ Contrat de Transport International de Marchandises par Route (CMR)

The CMR Convention applies to all contracts for the carriage of goods by road by means
of vehicles. Its main characteristic is that the place of loading the goods and the place
intended for delivery to the recipient need to be located in two different countries, at
least one of which is a contracting country, regardless of the place of residence and
nationality of the parties to the contract of carriage.

This transport agreement does not apply to:

- Transport carried out under the regulation of international postal conventions.

- Funeral transport.

- Furniture removal.

The contracting parties agree not to change any of the provisions of this convention by
special agreements between two or more of them, except to make it inapplicable to
their border traffic or to authorize the use in transport operations confined exclusively
to their territory of consignment notes representing a title to the goods.

The transport document consists of four original copies signed by the sender and the
carrier:

1. The first copy is in the hands of the sender.

2. The second one will accompany the goods.

3. The third will be in the hands of the receiver.

4. The fourth must be returned to the sender once signed and stamped by the
receiver. There are a series of indications that can be found in the consignment
note such as:

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- Place and date of writing it.

- Name and address of the sender.

- Name and address of the carrier.

- Place and date of loading and the expected place of delivery.

- Name and address of the receiver.

- Number of packages and their identification.

- The amount of goods transported.

- Price and transport expenses.

If the goods are transported in more than one vehicle, or the vehicle is composed of
several shipments, it is necessary to issue a CMR consignment letter for every vehicle or
every shipment, allowing a single CMR consignment letter if the load is carried out in full
regime.

▪ Railway Consignment Note (CIM)

The CIM transport document is the one used in rail transport. It consists of a set of six
identical copies written in the language of the issuing country with a translation to at
least one of the following languages: French, English, German or Italian.

This document grants "ownership" of the goods if one has the original. The duplicate
is only valuable as proof of the shipment.

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✓ Original: delivered to the addressee together with the goods.

✓ Roadmap: keeps track of all expenses and charges. It accompanies the

merchandise throughout its journey and is kept by the destination station.

✓ Duplicate of the Roadmap: remains with the first railroad.

✓ Duplicate of the CIM Bill of Lading: given to the consignor, once the first
railway has accepted the shipment.

✓ Matrix of the expedition: in the power of the first railroad.

✓ For the internal regime of the first railway.

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