International Trade Law and Cross-Border E-Commerce
WCO, ICC, WTO, GATT, FTA’s… Those are but a few of the legal frameworks and institutions responsible for the rules and regulations you deal with every day in your international business. But often they are of interest only to big, traditional exporters. And if you’ve just taken your e-commerce business global, you may be familiar with those regulations that concern you. But do you know why they exist, who is responsible for them and how they fit into the bigger picture of global trade?
In the first part of our series on International Trade Law we’ve assembled must-know facts on the most important organisations and institutions shaping international business and trade:
WCO – World Customs Organization
Established in 1952, the WCO is an independent, intergovernmental body aiming to make Customs administration in its 182 member states more efficient. The most recent states to join were Kyrgyzstan and Antigua and Barbuda in 2017.
The WCO regularly monitors economic political, social, environmental, and administrative developments that directly or indirectly relate to Customs. On this basis, strategies are developed to
– help facilitate global trade by simplifying and harmonising procedures,
– provide a collaboration platform for Customs authorities and their stakeholders
– assist authorities in implementing standards, tools and efficient revenue collection methods.
And what is the most tangible thing the WCO has done for you? In a bid to make sure that Customs processes are as efficient as they can be, the Organization has given us (and still maintains) the Harmonized Commodity Description and Coding System. In short, the Harmonized System which the so-called HS-codes come from that you need to apply to every item you send abroad. Yes, it may seem annoying at times, especially when you’re unsure which codes to apply to certain items. But without it, just imagine how long Customs clearance would take!
ICC – International Chamber of Commerce
More recently known also as World Business Organization (WBO, maybe to avoid confusion with the International Cricket Council), the ICC offers memberships to companies, individuals and trade organisations via its national committees. It was founded in 1919, just after the First World War, with the aim of establishing a community of private sector companies that would develop standards and rules for international trade, investment, finance and commercial relations. In addition to giving its member organisations a voice in international lawmaking, it also set up the International Court of Arbitration and offers mediation services.
Maybe your company is already a member of the ICC and regularly participates in events, seminars or even gets involved in the expert committees that draft regulation suggestions for occasions such as the G20 summit. But even if not, you’ve probably come across the ICC’s most famous piece of regulation: the IncotermsⓇ. They are a set of definitions and rules of interpretation for the most common terms used in commercial contracts, designed to avoid any misunderstandings related to obligations, risks and responsibilities of a trade deal. The one we at Hermes BorderGuru (and many e-Commerce retailers) use most often is DDP: Delivered Duty Paid. It describes the obligation of the seller to deliver the goods to the agreed destination and to fulfil all formalities and payments involved (for example import and Customs clearance). At Hermes BorderGuru, we are specialised in taking this weight off merchants’ shoulders so they can comfortably make their customers on the other side of the world happy, because DDP is undoubtedly the most convenient delivery method for the buyer.
WTO – World Trade Organization
Probably the most widely known institution regulating international trade, the WTO was founded in 1995 as a result of years of negotiations and based largely on the General Agreement on Tariffs and Trade (GATT). Since Afghanistan joined in July 2016, the WTO has 164 members, amongst them also the independent customs territories of Hong Kong, Macao and Taiwan. The organization mainly aims to gradually reduce barriers to trade and to make sure that those barriers that are in place are employed in a transparent, non-discriminatory way, whilst preserving the sovereignty of member governments and offering special protection to developing countries. The WTO covers not only the trade of physical products (under the regulations of the GATT) but also that of Services (under the GATS) and of Intellectual Property (under the TRIPS). Last but not least, it also comprises a Dispute Settlement Body to resolve issues between member states.
With such an extensive catalogue of responsibilities, WTO regulations and agreements impact most aspects of your cross-border sales. Let’s start with tariffs: whilst the goal of the WTO is to reduce barriers such as tariffs, they still exist, and for good reasons. For many developing countries for example, they are one of the main sources of income, and abolishment of tariffs altogether may do more harm than good.
However, if they are disproportionately high, they hinder free trade, and this is why every member state has to commit to maximum tariff rates it cannot exceed. In a bid to avoid discrimination, member states also commit to the Most Favoured Nation principle, which essentially demands that once you grant a member state favourable trade conditions (e.g. a lower tariff rate on a product) you will have to offer the same condition to all other WTO members as well. (We’ll discuss in another article how exactly this can be reconciled with Free Trade Agreements and the EU, for example.) Those are the main factors shaping the tariffs applied to the goods you send abroad, and for the sake of transparency, they have to be published in tariff lists that are easily accessible for all the parties involved.
The WTO also wants to make sure that your products are not discriminated against in favour of local products. This means that they cannot be subjected to higher taxes than domestic products, for example, or stricter regulations. It should be noted, however, that exceptions to the rules mentioned above are possible if they can be justified accordingly, for example where health and safety is concerned, or following special regulations for particularly vulnerable sectors such as agriculture.
And last but not least, the WTO is also responsible for the Agreement on Rules of Origin. They seem complicated and are a headache for many exporters, but they also make sense, especially today, as many products consist of parts with different origins and pass through several processing and assembly stations in different countries. The necessity to know where a product and its components come from arises from the fact that often, trade restrictions and tariffs are bound to the country of origin (through Free Trade Agreements and the various exceptions to the non-discrimination principles mentioned above). That’s why it’s important to know the supply chain and production process of the products you’re selling: it can save you a lot of time and nerves when dealing with import procedures and customs!