As the cost of input products rises, companies across the globe are looking to reduce their costs by sourcing from competitive suppliers, wherever those suppliers may be found. Equally, companies are looking to the global markets to sell their products as widely as possible. This article looks briefly at some of the steps companies involved in the minerals industry within the European Union can take to reduce the costs and minimise the risks associated with importing goods into the EU.
As a general rule, the customs framework within the EU is set at a European level. However, interpretation of customs rules (and in particular enforcement) may differ at a Member State level and so it is important to take local advice. As an example, the United Kingdom permits voluntary disclosure of customs issues to HM Revenue & Customs, and will waive penalties (although any duty shortfall will still be payable) if a submission is made voluntarily. This policy is not practiced uniformly by all Member States throughout the EU.
The starting point for the customs treatment of any product is tariff classification. A tariff number allows customs authorities to easily identify what that product is for customs purposes. Natural, unprocessed products tend to be classified under lower headings, and tend to attract lower duty rates. Section V of the tariff deals with mineral products. So, as a simple example, natural graphite is found under heading 2504. Natural graphite in powder or flakes would fall under the ten digit classification 2504100000, and would attract a headline duty rate of 0%.
The ten digit classifications give the headline duty rates; if you get the tariff classification wrong, you could be either under or over paying customs duties (and in any event will be committing a technical violation which may lead to penalties).
You may well consider that, in circumstances where the duty rate is 0%, inaccurate classifications are not a big issue. However, duty rates fluctuate across the minerals sphere. For example, Portland cement clinkers fall under the heading 2523100000. They attract a headline duty rate of 1.7%. In circumstances where large amounts of product are being imported, these duty rates can have a significant impact on the profit margin.
Another important factor to consider is where your products originate from for customs purposes. Certain countries (such as Mexico and South Korea) have preferential trade agreements with the EU and many developing countries benefit from general arrangements such as the Generalised System of Preferences, under which the import of certain products will benefit from reduced or zero duty rates. However, to take advantage of these benefits, importers will need to show (through an origin certificate or a supplier’s declaration) that the goods in question qualify for preferential treatment. Minerals importers should assess their supply chain to see whether it is possible to take advantage of preferential trade agreements and, if so, whether suppliers are contractually obliged to provide the relevant documentation on import.
The origin of goods also matters because the EU often imposes additional import duties, known as anti-dumping duties, on certain products from certain jurisdictions (in particular non-market economies such as China). Depending upon the “dumping” margin identified, these duties can be very significant and may drastically increase the import price of input products. In a very well-known case1 also touching on issues of origin and processing, an importer of Chinese silicon was found to be liable for anti-dumping duties of 49% of the value of the product – a backdated bill of €99,974.74 (plus possible penalties).
Clearly, therefore, assessing your supply chain to ensure that you are not and will not be liable for anti-dumping duties (and amending the sourcing of products if you are) can very significantly reduce the cost of importing into the EU and could free up additional working capital for your business.
Conversely, in certain circumstances, the EU will suspend or withdraw customs duties from certain products in certain circumstances. Typically, tariff suspensions or quotas will be put in place where the product in question is not available (either at all or in sufficient quantities) in the EU. This has significant implications for the minerals industry, where certain minerals or mining products are only available in particular jurisdictions. If your input products are not available in the EU, or are not available in the quantities you require, it is worth assessing whether an application for a tariff suspension is worthwhile to reduce your customs duty burdens.