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TOP 10 Common Costly Mistakes Importers Should Avoid When Importing Into The U.S.

TOP 10 Common Costly Mistakes Importers Should Avoid When Importing Into The U.S.

Nearly every week we receive and hear about cases where a foreign company faced problems on importing from China, for different reasons. If you want to go into business with a Chinese supplier, but are concerned about quality or safety issues, and even about payments terms, know that if you take some preventive measures on your side, you can safely import from China.

There are several common fears or dilemmas among foreign companies willing to import from China, a lot of examples of what works and what does not work, as well as numerous ways to avoid problems and mistakes on doing business.

As for the common concern of quality and safety compliance of goods produced in China, it is very important to be aware that you can find all types of products and quality from Chinese suppliers and it is your responsibility to make sure you choose the right supplier and that what you are importing safe goods. In this regard, the following measures are advisable:

  1. Be aware of quality certificates and compliance, trade tariffs and barriers;
  2. Make sure that the Chinese manufacturer or supplier is familiar with safety regulations of the market where you are willing to sell;
  3. Visit the manufacturer (or entrust a professional to do so) to check whether the safety compliance standards match with your requirements;
  4. Communicate with Chinese manufacturers/suppliers on your product requirement again and again, and then check, check, check. (Chinese companies may not fully understand the product functions, quality requirements and life styles in western countries and hence may manufacture “good” products to their satisfaction but not to your standard);
  5. Get samples and send to a lab from your own network in order to test the quality;
  6. Verify the quality of the raw material and accessories before the production starts and during the production process;
  7. Conduct pre-shipment quality inspection.

What is more, foreign businesses must bear in mind some must-knows and take necessary preventive actions before and /or when importing from China:

  1. Select a capable and reliable supplier (There are several methods to check if a supplier is legitimate. If you are new to business and do not know how to proceed, find an import/export business training program or hire an import/export agent to guide you through the process)
  2. Be aware that subcontracting is very common in China and that many times you are dealing with an agent and not the actual manufacturer
  3. Have written contracts, signed (in China they also have to be chopped) and valid upon local laws (find a lawyer who understands the local legal environment to check the contract for you)
  4. Keep records of all promises regarding terms and conditions of the business
  5. Visit (or hire someone to do so) the factory frequently
  6. Avoid exposing all your intellectual property in the hands of only one supplier
  7. Verify raw material and accessories before the beginning and end of production line
  8. Communicate with people personally and by phone, but always confirm in written (double-check)
  9. Have a reliable supplier as backup plan
  10. Make Quality Control prior to shipment and 100% screen for defective goods

Should you follow the measures mentioned on this article, your chances of having problems with imports from China lower considerably or, at least, the chances that you can have a problem solved is much higher than if you decide to go into business without a preventive attitude.

Did you know that…

TOP 10 Common Costly Mistakes Importers Should Avoid When Importing Into The U.S.

In most cases, export-oriented Chinese manufacturers do not have a big profit margin but live on the mere margin gained from VAT return for goods export. If the price is too low, usually means that the Chinese manufacturer does not want to lose orders to competitors and hence has compromised quality to gain a reasonable profit margin for himself.

China holds major trade fairs and China import and export Fair is held every April and October in Guangzhou (Canton Fair). Visiting trade shows is a good way to see/meet suppliers face-to-face.

Usually an initial deposit of between 30-50% will be requested by a Chinese Manufacturer to get your product/order into production.

Mistake #1: Overlooking the Importance of Shipping Terms

Not understanding the shipping terms may be one, another is completely overlooking the importance and taking them to heart. There are huge numbers of shipping terms and failure to understand the Incoterms is a major issue for first-time importers. as well as the regular shippers.

Incoterms are laws that regulate the whole of the shipping industry. They’re always used in contracts for international trade. If you don’t know what they are, you’ll risk getting underpaid, getting hit with unexpected bills, paying someone too much or perhaps even get sued.

Case in point: We’ve seen importers order on “CFR” terms (Cost and Freight) and get hit with high and unpredictable bills at the port on arrival. Importers have also ordered goods on “EXW” terms (i.e. Ex Works) not realising they have to pay for everything end to end!

Once you’ve got your head around incoterms, there is also a large amount of shipping terminology that may be used in reference to your shipment.

Different terms are used across borders – somebody in the U.S. might say one thing when a different term is used in Australia. Using the recent incoterms as a quick reference, you will be well prepared for shipping across the world.

Mistake #2: Forgetting to book in advance

Now that we are in shipping peak season, you should really book at least four weeks in advance to secure your sea freight shipment. During this period, shipping lines will be fighting much demand.

They will take more bookings than they can carry and roll some of the containers to the following week to maximise return.

If you’ve got an urgent shipment, preparation is vital.

Mistake #3: Not preparing paperwork

It is boring but could mean the difference between making money and losing money. Paperwork must accompany every consignment that comes into any country. This includes a whole range of documents like Commercial Invoices, Packing List, Certificate of origin (i.e. a document certifying the place of your goods are made).

Get your paperwork sorted before shipping your goods to minimise delays or extra nasty charges should cargo go into storage on arrival.

Mistake #4: Forgetting about Free Trade Agreement

Nigeria benefits from a range of free trade agreements with other countries. Some include an agreement with  China and another with Malaysia.

Why does this matter?

Because there are benefits when trading with those countries you can take advantage of. There are also rules you must follow.

Case in point: Some clients import their goods and then forget to produce a Certificate of Origin before the goods arrive. The result? Well, the good news is that they can still get a duty refund but now they will need to hire a broker to arrange this for them and you guessed it, this introduces an additional cost.

Thus to save time and money, always check out any free trade agreements before shipping and prepare all the paperwork in advance.

Mistake #5: Not allowing enough time upon arrival

There are two steps when your goods come into the country. There’s handling by the airline/container line. Then there’s the review by customs. Both of these steps affect the time before your cargo becomes available for a forwarder to collect.

Notice how your documents might say an ETA (Estimated Time of Arrival) date and time? That’s ETA to the point of destination. The destination is the airport or port of arrival, not your warehouse door.

You should allow at least 2 days for full container deliveries, 3-6 days for loose container deliveries and 1 day for air freight deliveries after ETA. This is all subject to a clear customs status and no inspections required.

Mistake #6: Forgetting about customs charges

When importing into Nigeria, your forwarder will normally provide you with a rate excluding duties and GST. This means that you need to account for additional charges on arrival levied by customs.

These are based on the value of your goods, your commodity and country of origin.

Mistake #7: Going silent on the forwarder

When goods arrive in Nigeria, as an importer you are given a certain amount of “Free Time” to collect your goods from the wharf or airline and return empty containers back the shipping line. The free time at the port is usually 3 days from availability whereas at the airline the time can be much shorter.

Your agent, however, will be unable to collect your cargo unless duties and GSTs have been paid and all paperwork properly presented.

It is, therefore, important that you communicate with your shipping agent throughout the course of the shipment to ensure goods can be properly cleared and payment settled on arrival. So stay involved in the shipping process and be prepared to react when your goods arrive.

Mistake #8: Failing to Insure Goods

We’ve seen clients who import goods and make the decision not to insure them. Making this decision can be extremely risky. These risks go beyond the obvious externalities such as fires and natural disasters.

Other mishaps can involve improper handling of your cargo, poorly designed packaging that gets damaged when exposed to the rigours of shipping, theft during transportation, containers lost overboard, and the list goes on.

Another misconception is that freight forwarders already have the insurance covered. They don’t. Freight forwarders and carriers are largely limited in their insurance liability.

Talk to your freight forwarder or an insurance broker to know about the risks that your cargo can be subject to. Most often, protecting your cargo and guaranteeing your peace of mind is worth the extra cost, particularly if you are moving high-value cargo.

At last but not least, make sure that in your agreement between the shipper and the consignee it is clearly stated who is responsible for the insurance.

Lastly,

Mistakes #9: Failure to Seek Assistance

These common mistakes made by importers are just the tip of the iceberg. All shipments are different and import and export processes are constantly changing (the incoterms 2020 have just been released, for example).

In order to safeguard your cargo and save yourself from unnecessary stress, always seek professional help from an experienced freight forwarder.

Should you have any queries about importing goods from overseas to Nigeria kindly contact us for a tailored consultation or shipment.

 

The importer is ultimately responsible for the declaration made on their behalf, meaning that they hold the legal obligation to “get it right” upon entry. An importer is considered to be legally negligent if an error has occurred as it relates to tariff classification, import value, tariff treatment, the applicability of NAFTA or other free trade agreements, trademarks, government agency regulations affecting importation, and more.

Here are four common errors you can avoid:

1. Obtaining Duty Benefits of Free Trade Agreements (such as NAFTA) by Applying the Wrong Tariff Treatment. 

In order to be eligible for NAFTA, your goods must satisfy the following criteria:

i) The requirements as outlined in ‘Annex 401’ that provides the specific rules of origin that is applied to goods to determine whether it qualifies as “originating” in accordance to the Harmonized Tariff Schedule

ii) Qualify as a NAFTA origin good in accordance to the appropriate Marking Rules

An importer or exporter is legally obligated to analyze its product’s NAFTA eligibility before claiming NAFTA or issuing a NAFTA Certificate of Origin. Not having the necessary audit trail in place puts your organization at risk, as one misstep can cost big dollars – both in duties and penalties.

2. Intentionally Marking the Wrong Country of Origin

Both Canada and the United States have specific regulations that require foreign products be marked in the prescribed formats of their respective legislative authorities.

There are a significant number of Customs rulings and case laws that have interpreted these regulations. Although it can be confusing to interpret, the law is clear about the requirements and the civil and criminal penalties for violations.

For example, it has been widely documented that importers/exporters seek to conceal the true country of origin because U.S. origin products are highly sought after, often commanding higher prices in the U.S. marketplace. Customs authorities are vigilant about country of origin marking violations, and frequently impose large penalties, whether criminal and/or civil.

3. Under Valuation of Imported Goods

It is the importers responsibility to ensure that the correct value of imported goods is accurately declared to the respective Customs authority. However, there are circumstances where undervaluation may occur.   As the majority of import tariffs are assessed on an ‘ad valorem’ basis, the declared value directly impacts the amount of Customs’ duties payable to the Customs authority. By undervaluing the imported goods, the importer is knowingly attempting to evade the applicable duties and taxes owed to the Customs authority.

Some other circumstances that may result in the value being underreported include:

i. Doing business with related suppliers, where the relationship may affect the price (related party transactions must be declared as such on the customs entry).

ii. Cost of “assists” provided to foreign suppliers that are not reflected in value declared to Customs (e.g., importer provides tools, dies, materials, pays for foreign engineering/design services).

iii. Value does not reflect pre-payments, indirect payments, or future payment obligations.

iv. Value is not determined in the context of an arms-length transaction and alternative valuation procedures are not followed, etc.

Incorrect declarations of relationship, valuation errors, and value underreporting can go on for years, and can cause a substantial underpayment of duties, leading to substantial penalty exposure.

 

4. Recordkeeping Non-Compliance

The term “Records” is any information made or normally kept pertaining to imported merchandise, the filing of a drawback claim, the issuance of a NAFTA export certificate, or the payment of fees and taxes to the applicable Customs authority regardless if the documents were required at the time of entry.

Both Canada and the United Sates have specific regulations that require importers, exporters, carriers, and customs brokers to maintain customs records.

Canada

In accordance to Customs Memorandum D17-1-21 Maintenance of Records in Canada by Importers, records must be kept for six years.  If an importer fails to comply with the requirements of record maintenance under subsection 40(1) of the Act, the CBSA may:

• (a)  assess Administrative Monetary Penalty System (AMPS) penalties in accordance with subsection 109.1(1) of the Act;

• (b)  detain under the authority of section 41 of the Act, any goods imported by the importer until the importer has complied with the requirements.

Canadian Penalties
1st Offence: $300*2nd Offence: $4503rd Offence, and Subsequent: $900Penalty Basis: Per Instance* A 30-day delay in the escalation of penalty levels from the first to the second will apply to this contravention. Should a second penalty with the same contravention be issued against the same client, the system will not escalate the penalty level to level two unless 30 days have transpired from when the first Notice of Penalty Assessment (NPA) was issued or the infraction occurred. The non-escalation rule applies from the first level to the second level only; it does not apply from the second to the third level.

United States

The U.S. Customs and Border Protection (CBP) require that entry records are kept for five years from date of entry, or five years from the date of the activity that required the maintenance of the records.

Failing to produce records, upon demand, an entry record enumerated in the Customs Regulations pursuant to 19 U.S.C. 1509(a)(1)(A), commonly known as the “(a)(1)(A) list,” may be subject to recordkeeping penalties. Recordkeeping penalties can be substantial, with penalties varying by whether the failure is due to negligence or willfulness.

United States Penalties
Negligence: the lesser of $10,000 or 40 % of the value for each release of merchandiseWillfulness: $100,000, or 75% of the valueParticipation in a Customs recordkeeping compliance program will greatly reduce or eliminate recordkeeping penalties.

 

Avoiding these four common errors can save you hundreds of dollars in the long run, and more importantly, ensures that your company is compliant with trade regulations.

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