Advanced Import Management

• Terms Commonly Used in Trade
• Methods of Payment
• Tariff Classification
• Duty Concessions
• Dumping
• Customs Clearance - Minimum Documentation Required
• How to Ensure Clearance Before Arrival
• Freight Forwarders, Shipping Companies and Airlines
• Freight Charges
• Any Questions?

Letters of credit are often used as a method of payment, and have certain advantages and disadvantages. Essentially, they are promises importers make to exporters to pay for the goods once certain documents are produced. These promises are normally transmitted through (and backed by) banks. 

For example, an importer might promise to pay US$50,000 for five cars, once the exporter produces evidence they have been placed on board a direct ship before the end of December. The importer’s bank also signs this letter, and immediately assumes liability for paying the US$50,000, as soon as the exporter complies with the conditions. 

For this reason, banks treat letters of credit as they do other credit facilities and will impose credit ceilings on applicants, as with overdraft limits. In our example, the exporter provides the Japanese bank with an on-board bill of lading on December 28 and US$50,000 is credited to the exporter’s account. The Japanese bank recovers that amount from the New Zealand bank, which in turn debits the importer’s account. The Japanese bank sends the bill of lading to the New Zealand bank, which passes it to the importer, who can then take possession of the goods. 

It is also possible that, instead of these payments occurring when the necessary documents are produced, the letter of credit states payments will be made at some future date, say, in 30 days. In these cases, the banks will be pleased to oblige, as long as they get the interest, paid by either the importer or the exporter, depending on the terms of the letter of credit. 

So it is easy to see how letters of credit protect both exporters and importers. However, we must not forget that they deal with documents and nothing else. For example, if the cars were shipped without engines, the banks would not accept any responsibility, as all the documents would still be correct. However, if such verification is important, importers can demand certificates of inspection by independent third parties. 
Banks will charge quite hefty fees for their services. Because physical possession and endorsement of the bill of lading is the key to the security of the transaction, transmission delays will often cause demurrage at destination. It is therefore important to use letters of credit only when you need the protection they offer. 

If you do not need this protection, you may be better using a simpler form of international transaction: bank draft against documents. This simply means importers must instruct their banks to transfer funds to the exporters before the banks will let them have the documents. This provides some security to exporters, but not as much as a letter of credit does. Importers can simply refuse to accept the drafts, in which case they cannot take possession of the goods, but neither will the exporters receive payment. So if an importer's business collapses, the exporter can be left exposed. 

Drafts can also be drawn at sight, i.e. payment is made on the spot, or subject to terms. If a term is specified, the banks will recover interest in accordance with the terms of the draft. 

Most companies carrying out transactions with associated companies use open accounts, as do companies when there are no security issues in the transaction, for example if they have a long-standing trading relationship and mutual trust. This method is used for most domestic transactions in New Zealand, and most companies will extend credit terms to their clients, subject to them meeting certain criteria. 

However, while this is the most efficient and least costly option, it is also the most risky. Many traders are prepared to accept those risks domestically, but are reluctant to do so internationally, as it may be much more difficult to recover international debts. Some exporters will simply demand payment before they ship the goods. This way, importers assume all the risks. 

Deciding which payment method to use essentially comes back to risk assessment. There are substantial penalties for seeking too much security (in the form of delays and charges) and equally substantial penalties for accepting too high a level of risk. Daniel Silva Ltd suggests you assess the risk and then decide on the best method. In our experience, many importers and exporters use letters of credit unnecessarily, simply because “that is the way it has always been done”.

The New Zealand Tariff is a schedule to an Act of Parliament. Like any other piece of legislation, the courts must interpret it according to the provisions of the Acts Interpretation Act 1924 and common law statutory interpretation rules. 

The courts can review Customs’ tariff classification decisions, as they can any other administrative decision. However, challenging a tariff interpretation in court can be expensive and time consuming, and so is not always the best way to resolve a dispute. Many countries have set up lower level tribunals to address these issues less formally, but more quickly and economically – New Zealand’s Customs Appeals Authority is such a tribunal. 

If you wish to invoke the dispute resolution provisions of the Act, you must first pay the prescribed fee ($50) and get a written ruling from Customs. For example, you cannot use a verbal ruling given during an examination as the starting point for the appeal.

A person applying for the tariff opinion who disagrees with the Customs decision may refer the matter to a Customs Appeal Authority for resolution. After the Authority delivers a ruling, both the importer and the Comptroller can appeal to the High Court. They must lodge notice of appeal within 28 days of the date on which the appellant was notified, or within such further time if the Court allows.

You can search the tariff database in this site.  

You can import goods duty free if they have no domestically manufactured equivalents, under a concession issued by the Minister of Commerce. However, this process is not automatic, so you need to apply for a concession if your product does not qualify under an existing one. Even if an identical product with a different brand name is already approved, your product will not automatically be covered, and you may still need to apply for a new concession.

The procedures for obtaining a duty concession and the policies under which these applications are considered are quite simple, and you are unlikely to need the help of consultants to understand them.

To apply, first make sure the goods are classified correctly under part I of the tariff. Then check to see if an existing concession covers the goods. If you are in any doubt, seek a written ruling from Customs.

Submit the application on the prescribed form, accompanied by a fee of $390. Once the Ministry of Economic Development has considered the application it may take one of three possible courses of action. 

• It may discuss the concession with you, especially if the wording needs to be changed – concessions must be worded in such a way that Customs can enforce them.
• It may decline the application outright – this happens if the Ministry knows equivalent goods are being manufactured domestically.
• It may advertise the application in the New Zealand Gazette.

Dumping occurs when goods are imported into New Zealand at prices below their normal prices in the country of export and when those prices cause material injury to an industry. It does not occur simply because local industry finds it difficult to compete with low-priced imports.

To establish a case of dumping, the affected industry must lodge a complaint with the Ministry of Economic Development, which makes a preliminary decision on whether or not there is enough evidence to warrant further investigation. (The complaint may be made by a single company or a group of companies but, for the purposes of the Act, the complainants must comprise a significant proportion of the total industry.) If enough evidence is available, the Ministry will start an investigation and will publicise this in the Gazette. It will then invite importers to make submissions.

At the end of the investigation, the Ministry must advise the Minister whether or not there are valid reasons to impose a dumping duty. Countervailing action is quite similar, except that it applies when the lower prices result directly from a foreign government subsidy. The amount of the dumping or countervailing duty applied should be only that needed to restore “normal” prices.

Manufacturers will often threaten importers with dumping action when it is apparent that the conditions for such action do not exist. On the other hand, importers of footwear have had to deal with significant duty increases because the Minister of Commerce has upheld dumping complaints made by the Manufacturers Federation. There is a list of products subject to anti-dumping duties in this site. 

To clear goods through New Zealand Customs, you need a commercial invoice and a copy of the bill of lading or airway bill, or the information contained in those documents.

You do not normally need certificates of origin, packing lists, certificates of insurance, bank drafts, or other documents. The need for importers to produce a certificate of origin for every shipment for which they are claiming a lower tariff based on the origin of the goods (for example, Australia, developing countries) was recently abolished. However, Customs can still demand evidence of origin for any one such shipment. This could be in the form of a certificate, a letter from the supplier or simple visual inspection of garment labels, for example. 

Packing lists can help when, for example, the goods are subject to a physical examination. Customs may sometimes require proof of payment, for example copies of bank drafts or letters of credit. However, such requirements are the exception and you should not act on the basis you will always need to meet them. You do not need to ask suppliers for these documents with every shipment, and the clearance process can begin without them.

Customs will accept photocopies or faxes of all documents. This means you do not need to wait for (a) the documents to arrive from the bank or (b) the arrival of the flight, before clearance begins.

Customs will also accept declarations based on the information contained in those documents, even when you cannot produce the documents themselves at the time of lodgement. The typical example of this is when a declaration (entry) is prepared from information contained in an EDI message. New Zealand Customs cannot yet receive EDI messages for invoices and waybills. Therefore, if you receive these electronic documents you must be able to produce a hard copy print-out of the information for Customs, if it is asked for.

It is also possible to use information normally found on waybills but received before the waybill is available, for example, a fax or electronic mail message received directly from the overseas supplier or freight forwarder. 

New Zealand Customs will accept declarations lodged up to five days before the arrival of a ship or one day before the arrival of an aircraft. This means your goods can be cleared before they arrive. Every shipping manager should aim to achieve this for most consignments.

To do so, shipping managers should set in place systems that ensure the information arrives well in advance of the goods. These systems can be as complex as a full EDI implementation or as simple as demanding that the invoice and the document of transport be faxed.

You need to impress upon your suppliers the importance of receiving the necessary information by fax. The most effective way is to ensure all your letters of credit have a clause such as: “Beneficiary’s statement certifying that a copy of the commercial invoice and bill of lading have been faxed to the applicant within three days of bill of lading date.”

This means exporters have to give such statements to their bank, before they can be paid. This does not, of course, ensure that they comply but it acts as a good reminder. All you have to do is tell your bank in writing to ensure it automatically inserts this clause into all your future letters of credit. If you do not use letters of credit, make sure you print or rubber-stamp a similar clause on your overseas purchase order forms.

For airfreight, you should ask the supplier to send you a fax or an Email as soon as the flight is booked, containing the following information: 

• Flight number and date 
• House airway bill number 
• Number of packages 
• Gross weight

The functions of a freight forwarder are not always fully understood. They perform two main types of functions:

• Consolidation/deconsolidation
• Freight brokerage

Many importers concentrate on negotiating freight rates and forget to negotiate the many other ancillary charges, which can sometimes exceed the value of the freight.

For example, most forwarders will agree to reduce their transfer fees (air freight) or delivery order fees (sea freight). Forwarders will sometimes completely abolish those charges, usually in the region of $25 to $35 per shipment, for large volume importers. Port service charges are also negotiable, especially when forwarders unpack the containers themselves.

It is also worth negotiating on “collection fees.” Most forwarders will levy a surcharge of between 2.5% and 12.5% on the amount of the collect freight. Sometimes, they use exchange rates that are not as favourable as those that importers can get from the banks. The easiest way to avoid these charges is to change the terms to freight prepaid (CIF or C&F).

You should be aware of non-standard charges such as “documentation fees.” If the terms are FOB, it is up to the overseas supplier to pay the forwarder for all costs involved with getting the goods on board a ship or aircraft. With the possible exception of shipments originating in the USA and Canada (where the term FOB is not yet understood), you should not have to pay for any such fees. 

You are welcome to call or email Daniel Silva in Auckland on (+64 9) 255 2569 or Ivan McNicholl in Wellington on (+64 4) 382 7655 for help with your importing operations.