Managing change in the import-export environment

Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.

This article appeared in the September 16, 2008 issue of the Bangkok Post.

By Paul Sumner

Every company involved in international trade has realised the pace of rule changes has increased dramatically in recent years. The stalling of the Doha agreement has led to many bilateral and multilateral pacts, as countries want to increase trade by reducing tariffs and non-tariff barriers.

In Thailand, there are a number of agreements either signed or about to be signed, including bilateral deals with Japan, Australia and New Zealand. In addition, the country is a party to the Asean Free Trade Area (Afta) agreement, while Asean itself has entered or is about to enter pacts with China, India, South Korea, Japan, Australia and New Zealand.

For both multinationals and Thai exporters, it is not just the agreements involving Thailand that are important. Other countries around the region are entering into agreements that may offer a commercial advantage. Therefore the rationalisation of using manufacturing locations to take advantage of such agreements, and understanding what competitors are doing to react to opportunities to lower customs tariffs becomes very important.

Companies in Thailand have recently been faced with a host of changes, all of which they need to track..

For example, Thai Customs is undertaking the first major rewrite of Thailand's customs laws for more than 80 years. Amongst the many areas being considered are:

  • a proposal to increase the maximum penalties levied;
  • a new appeals board;
  • the period of collection of duty arrears;
  • the definition of "customs price";
  • the right to duty refunds;
  • binding rulings;
  • penalties for service providers (such as clearance agents) as well as importers.

These proposals, if enacted, may have a significant impact on companies. For example, it would be helpful to know before renegotiating a contract with a broker that the Customs Department plans to start penalising brokers for errors on import entries. This will affect the commercial arrangements between importers and their brokers. As well, in the future it may be possible to transfer the right to duty drawback between companies. If this happens, the release of sensitive information from the exporter to the importer in the domestic supply chain may no longer be necessary to claim back the customs duty on imported raw materials.

Another major change on the horizon is the introduction of the Thailand version of the Authorised Economic Operator (AEO). All customs authorities have been looking to make supply chains more secure, ever since the US launched the Customs-Trade Partnership Against Terrorism following the 9/11 events.

A pilot programme is due to start in Thailand by Jan 1, 2009. The expected benefits to participating firms include:
  • a lower risk score in the Customs Department's risk management systems;
  • consignments may be fast-tracked through customs controls;
  • AEO status traders may be able to omit certain data from their customs declarations.

Joining the programme will have a cost in terms of preparation and maintenance. Systems will need to meet certain minimum standards and there will also be an ongoing compliance cost. Will the benefits outweigh the costs? The answer will depend on the commercial circumstances of the company.

The way customs rules are implemented is also changing, either through changes of the rules themselves or in their interpretation. A recent example was the adoption of the HS 2007 system of tariff classification, with several new codes. Eighteen months later, companies are still discovering that current classifications used (and therefore duty rates) are incorrect and that back duties need to be paid, and the landed cost will increase for future shipments.

Companies wanting to obtain a commercial advantage need to regularly review their compliance status and also consider how changes can lead to more efficient cross-border operations and lower duty costs.(PwC publishes 'Trade Intelligence' bi-monthly, which helps companies understand the customs environment and changes across Asia-Pacific. See http://www.pwccustoms.com )