Advance ruling
Definition/Scope
Advance rulings are binding decisions by Customs at the request of the person concerned on specific particulars in relation to the intended importation or exportation of goods. Advance rulings can be requested with regard to either the classification, the origin or the Customs value of the goods in preparation for importation or exportation. Advance rulings facilitate the declaration and consequently the release and clearance process, as critical assessments in relation with the goods have already been made in the advance ruling. Advance rulings are binding throughout the Customs territory at all Customs offices and valid for a specific period of time, e.g. 3 months or 1 year.
Problem Statement
Importers and exporters are often confronted with inconsistent classification and origin decisions depending on, for example, the Customs office of import or export or the rotating allocation of appraisal officers. This leads to uncertainty in the entire trade transaction as these different decisions have an impact on the amount of duties to be paid and ultimately on the end price of the product. This uncertainty can lead to supply chains moving to countries and locations of higher certainty, predictability and reliability, hence affecting trade development.
Implementation guidance
According to Standard 9.8 of the Revised Kyoto Convention (RKC) and the WCO Recommendation on binding pre-entry classification information requests for advance rulings need to be made in writing. Also Customs is required to issue the advance ruling in writing, including providing a right of appeal. The written request has to include a full description of the goods, brochures or samples to allow the proper classification. Ideally, Customs should establish a specialized unit at the regional or central level to ensure uniform and consistent operation of the advance ruling system.
Advance rulings on classification, origin and value will help importers and exporters to get, prior to import and export of goods, a decision from Customs on the classification, the origin and/or the value of the goods, which will be binding to the entire Customs administration for a specified period of time, e.g. 1 year. Regardless of which Customs office the import or export takes place, every Customs officer is bound by the advance ruling. According to Standard 9.9 of the Revised Kyoto Convention (RKC), binding rulings are obligatory for contracting parties. Advance rulings on the Customs value based on the “c.i.f.” based valuation rules are potentially less beneficial compared to those based on the “f.o.b.” based valuation rules, due to constantly changing transport and insurance charges, which have to be included in the “c.i.f.” value. Consequently, such advance rulings will only make commercial sense in cases where longer-term transport services contracts are concluded.
In a recent study on the impact of trade facilitation measures on trade costs, the OECD identified that the advance rulings system was the most impactful single trade facilitation measure. The OECD had identified 12 trade facilitation indicators, which, when applied in total, could potentially lead to a total reduction of trade costs of 10%. For advance rulings alone, the impact on trade cost was estimated to be a reduction of around 5,4%.
Additional information (references, examples, etc.)
The ICC Customs Guidelines # 40 to 43 contain relevant business perspectives on this very important trade facilitation measure.
