Trade compliance means following the rules and regulations when goods are shipped from one country to another. It ensures that businesses follow the laws of both the exporting and importing countries.

Trade compliance involves many areas of international trade, and each area requires specific knowledge.

It’s important to know that trade rules can vary depending on the country and the type of goods. Companies must meet each country’s standards for economic policies, ethics, product quality, supplier rules, and consumer protection.

Who Needs to Understand Trade Compliance?

Any business that exports or imports goods or services—no matter how big or small—needs to understand and follow trade compliance rules.

Business owners are responsible for knowing which rules apply to them. It’s important to regularly review international trade processes to avoid mistakes.

Larger companies often have entire teams that focus on trade compliance. These teams monitor rule changes, identify high-risk countries, and help reduce the company’s legal and financial risks.

Having a strong compliance process is important. Violating trade laws can lead to delays, fines, and even criminal charges.

What Are the Consequences of Non-Compliance?

Trade rules are getting more complex—and so are the penalties for breaking them.

Minor violations may cause shipment delays. Serious violations can result in large fines or even jail time.

Non-compliance can hurt customer relationships and damage your company’s reputation. It may also reduce profits or limit your ability to trade internationally.

What Are the Key Elements of Trade Compliance?

Tariff Classification

Correctly classifying your goods is a key part of compliance. It affects duty rates, export control, licensing, and customs procedures.

Goods are classified using the Harmonized System (HS)—a global system with more than 5,000 product categories, each with a six-digit code. This system is used by over 200 countries and covers 98% of global trade.

Why Tariff Classification Matters

• It’s the legal responsibility of exporters and importers.
• It helps calculate the correct taxes and duties.
• It identifies if permits or licenses are needed.
• It ensures standardized trade documentation.
• It supports accurate trade statistics for planning and negotiations.
• Errors can lead to delays, fines, or shipment seizures.

Problems with Incorrect Classification

• Customs may flag or investigate your shipments.
• Shipments could be delayed or denied if the required documents are missing.
• You might pay too much or too little in duties.
• Customs won’t usually refund excess duties if you overpay.
• Underpayment could result in extra fees and penalties.

Rules of Origin

The origin of goods is key to compliance and works alongside tariff classification and valuation.

According to the WCO, rules of origin are used by countries to decide where goods “come from” using national or international agreements.

There are two types:

• Preferential origin: For goods qualifying for reduced or no duties under trade agreements.
• Non-preferential origin: Used for general customs control, like quotas or sanctions.

Why Origin Determination Matters

• Determines if goods get lower duty rates.
• Affects anti-dumping or extra duties.
• Impacts whether a product can enter a country.
• Influences whether special permits are needed.
• Helps track quotas and labeling rules.
• Supports trade data accuracy.

Valuation of Goods

Knowing the correct value of goods is essential for calculating import taxes and reporting trade statistics.

The WTO Customs Valuation Agreement sets six methods to determine value. The most common is the transaction value—the actual price paid for the goods.

If this price isn’t acceptable, customs can use other approved methods in a specific order.

Why Valuation Is Important

• It directly affects import costs.
• It ensures proper taxes and duties are paid.
• Errors can cause overpayment (hurting profits) or underpayment (causing delays or fines).

Types of Duties

• Specific duties: Based on quantity (e.g., $1 per unit); no valuation needed.
• Ad valorem duties: Based on value (e.g., 5% of price); customs value must be declared.

Due to complexity, many traders request advance rulings from customs to confirm the correct valuation.

Customs Management

Customs management ensures that all regulations are followed so that goods can move through borders smoothly.

Many countries use customs management systems to speed up trade, cut costs, and make sure legal responsibilities are met. These systems help with:

• Document processing
• Classification
• Transit coordination
• Digital communication

License Management

Some goods need import or export licenses. These requirements vary by country and product type.

Controlled items may include:

• Weapons or military items
• Chemicals and medicines
• Art, plants, or animals

Exporting or importing without a required license is illegal. Goods may be delayed, seized, or destroyed.

Examples

• Permits/Licenses: Required for many controlled goods.
• Certificates of conformity: Ensure product safety.
• Pre-shipment inspections: Verify product standards.
• Health/vet checks: Needed for live animals or food products.

Export Controls

Like import controls, export controls require businesses to follow specific laws when sending goods abroad.

Some goods are dual-use—they can be used for both civilian and military purposes—and are subject to strict rules. Others (like timber or peanut butter) may also require special export permits.

Traders must:

• Properly classify goods
• Know the destination country
• Check if permits are needed

Violating export control laws can lead to severe fines or jail time.

Screening

Screening helps businesses avoid trading with banned or high-risk people or organizations.

This involves checking customer and supplier data against government watchlists. Screening helps avoid:

• Breaking sanctions or embargoes
• Doing business with politically exposed or criminal parties

Screening should be done:

• At the start of a new partnership
• Before every major transaction
• Regularly, for ongoing partners

Failing to screen properly can lead to legal and financial trouble.

Incoterms® Rules

Incoterms® are global trade rules created by the International Chamber of Commerce (ICC).

They define who is responsible for what in a sales contract—like who pays for shipping or who handles customs.

Knowing and using the correct Incoterms helps avoid confusion and disputes. These terms should be clearly listed on shipping documents.

Key Takeaways

Trade compliance involves many important steps. When importing goods, companies must:

• Use the correct tariff code from the Harmonized System.
• Declare the correct country of origin.
• Report the quantity y value of goods.
• Accurately list fees, costsy pricing.

Building Blocks of a Successful Trade Compliance Program

Trade Compliance Team

Companies should have a team responsible for understanding and following trade laws. The size depends on how much the company trades internationally, but the team needs to have the right skills.

The team should focus on:

• Creating a compliance policy
• Keeping records
• Classifying products correctly
• Writing manuals and SOPs
• Training staff
• Staying updated on law changes
• Monitoring compliance performance

Trade Compliance Manual

A compliance manual should document all company policies and procedures. It ensures everyone follows the same rules and helps meet legal requirements.

It should include:

• Customs policies
• Staff responsibilities
• Import/export steps
• Internal controls (like screening)
• Recordkeeping procedures
• Any special company rules

Internal Review

Even with a manual in place, regular internal reviews are needed to check if everything is working properly and updated.

A good review should include:

• Testing schedules (e.g., monthly or quarterly)
• Reviewing enough samples
• Matching financial and shipping records
• Fixing any issues (e.g., retraining staff or updating the manual)

Checklist of considerations

You should consider the following when implementing a trade compliance programme: