Most Favoured Nation: Everything Is Customs Fraud

Alas.

Welcome to the 117th edition of Most Favoured Nation. This week’s edition is free for all to read. If you enjoy reading Most Favoured Nation, please consider becoming a paid subscriber.

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Crime is bad and not to be encouraged.

But if you are going to commit the crime of customs fraud, there are a few different ways of doing it. You could, for example, claim that a diamond ring you are posting to a friend in Belgium is valued at €149, rather than its true value of €6,000, to bring it in under the EU duty de minimis threshold so it is not subject to a tariff.

You could also mislabel the origin of the product you are exporting try and dodge country-specific trade-defence measures. For example, you could ship your Indonesian biodiesel to the EU via China and the UK to try to dodge the EU’s 6.5% countervailing duty.

You could even get more creative.

With thanks to customs-guru James McLeod for sharing on LinkedIn, the European Public Prosecutor’s Office is currently investigating two Belgian importers for (allegedly) dodging customs duties of up to 79% on e-bikes imported from China:

In both instances, the companies that imported the e-bikes, as well as the companies that fulfilled the customs formalities, are accused of presenting incorrect customs declarations in order to evade anti-dumping and countervailing duties. The e-bikes were imported via Belgium in separate parts, allegedly to avoid the payment of anti-dumping duties due on the importation of fully assembled e-bikes.

In the first instance, it is estimated that the activities of the defendants caused damage to the EU’s financial interests of at least €3.5 million in evaded customs duties. In the second instance, the estimated damage is at least €3.1 million.

If found guilty, the defendants face between 4 months and 5 years in prison, along with a fine of 5 to 10 times the evaded customs duties.   

So as far as I can tell, rather than importing the e-bikes in a complete state, they imported the different parts and then re-assembled them.

BUUUUUT … is this really fraud?

I ask, because there is a long and proud history of traders gaming tariff-systems.

Take the long and proud history of Tariff Engineering. This is where a manufacturer tweaks the design of their product slightly to change its tariff classification and allow it to benefit from a more advantageous tariff rate.

The most famous example is Converse trainers: the manufacturer added felt to the bottom of the soles to ensure they were classified as slippers rather than footwear, resulting in a large tariff saving.

Also, see this example, as highlighted by Flexport:

Or take Columbia Sportswear, whose chapstick pocket is not only a saving grace at high altitudes—it’s also the result of an effective tariff engineering strategy. Columbia was importing blouses without a pocket below the waist, and thus paying a 26.9% duty. When a clever trade compliance professional pointed out that blouses with a pocket below the waist were subject to a lesser 16% duty rate, the company took notice—and realized serious savings.

But why’s this much different from taking apart an e-bike and reassembling it?

I’m not saying tariff engineering is never contentious — I once wrote a New Statesman piece about a judge having to decide whether an X-Man is human or not to determine the appropriate tariff¹ – but is it SO different from importing parts and then putting them back together? Or is everything, in fact, customs fraud?

Hmm.

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More pain and suffering

As some of you will know, I hate the game ‘Tradle’ because I am very bad at it. But for those of you who are not, you may be interested to know that the creators have made a new game for me to also hate: ConnecTrade.

This screengrab gives you the gist:

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Definitely not customs fraud

In news that is definitely not customs fraud and is actually near being the opposite, the folks at Business West, one of the largest Chambers of Commerce in the UK, and EFM Global, have successfully transported camera equipment from Heathrow to Brussels and back, using a Digital Carnet.  The world’s first demonstration of a Digital Carnet in action.

Cool.

From their press release:

When commercial goods, such as musical equipment for a touring band, are exported temporarily, it is typically by way of ATA Carnets. Referred to as ‘passports for goods,’ ATA Carnets can contain more than one hundred pieces of paper, requiring numerous physical authorisation stamps.

For a large-scale movement of goods, such as those involved in an international tour, there could be suitcases full of paper-based ATA Carnets, which need to be kept and looked after, as loss or incorrect use can incur significant delays and costs.

Brexit has seen the number of Carnets rise significantly for UK-based companies, as Carnets are now used for the movement of goods into and out of the EU, in addition to over 50 other countries across the globe.

The digitisation of the ATA Carnet system simplifies and expedites the Carnet process. It also reduces the risk of Carnet loss or damage and reduces environmental impact too. 

With the new Digital Carnet, temporary exporters can apply via a digital platform and download an app, which produces a QR code that customs officers can scan and then digitally stamp the Carnet. This has been in development by the International Chambers of Commerce for a number of years, working to achieve proof of concept and adoption by pilot countries’ customs authorities.

And also this photo of them looking very pleased about it:

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Best wishes,

Sam

1. Relevant part:

“Perhaps one of my favourite slightly odd examples is that of the US Court of International Trade settling a long-running nerd debate and ruling that the X-Men, mutant superheroes in the Marvel comic book universe, are not human.

This crucial judgement occurred after a company importing X-Men dolls into the US realised that it was being charged a higher import tariff than other toys. In order to qualify for the lower tariff, the company’s lawyers had to demonstrate that the X-Men were not in fact dolls (representative of humans) and were instead toys (representative of a non-human).

For the purposes of re-classifying the X-Men and determining what tariff to levy on these children’s toys, the court was required to consider the “subjective characteristics of mythical or fictitious characters” and in effect draw a line under the X-Men’s claim to humanity.

The judge’s opinion is really quite something to behold.

It acknowledges that most X-Men figures are on the “borderline” of resembling humans “in that they exhibit a mix of human and non-human characteristics”. For example “‘Wolverine’ has long, sharp-looking claws grafted onto his hands that come out from under his skin along with wolf-like hair and ears.”

But, ultimately, the decision rested on whether these additional characteristics "fall far short of transforming [these figures] into something other than the human beings which they represent" and decided the issue “is not a straight headcount of the human features a figure may possess, rather the issue is whether the figure as a whole and in a wider context represents a human being.” Which the judge decided they didn’t.

Deep, I know.”