Commercial and Customs Terminology and Its Importance
There are numerous terms used in commercial and customs affairs. Familiarity with these terms is essential for traders and individuals active in this field.
These terms are widely used in daily communications between individuals and administrative authorities, and a lack of familiarity with them may lead to misunderstandings of the subject matter under discussion.
The Role of Commercial Terminology in Facilitating Import and Export Processes
Customs Value of Exported Goods
In general, the export of goods may be conducted based on a value other than the contractual price, regardless of the price stipulated in the contract. Such values are set in advance by a government authority. By submitting a foreign price list to the relevant customs office or bank, exporters can access all applicable prices at any time.
This pricing method applies specifically to exported goods and must be observed by most exporters. Accordingly, if exporters are initially authorized to export goods, they must submit the preliminary price to customs.
Customs authorities subsequently determine the final price. In this situation, if taxes are imposed or a foreign-currency commitment is created, the declared price may no longer be adjusted.
Customs Value of Imported Goods
The customs value of imported goods is announced by the Central Bank.
Transport Documents
The transport contract document, document of title to goods, and receipt for delivery of goods are commonly used terms for transport documents, or bills of lading. These documents may also be used for obtaining insurance coverage.
The information recorded in a bill of lading includes the following:
- Description of the goods.
- Name of the carrying vessel.
- Commercial marks or numbers.
- Name of the carrier.
- Names of the ports of loading and discharge.
- Name and address of the consignee.
- Date of issuance.
Customs Supporting Documents
These documents relate to the lawful entry of goods into the country and the completion of preliminary customs procedures. Upon issuance of the relevant documents and payment of all outstanding duties and charges, the goods are cleared from customs, and all incurred customs costs are settled.
Goods Declaration
A form designated by customs authorities for the declaration of goods, specifying the individuals whose names must be stated in the declaration. The preparation of import and export declarations requires the presence of a responsible person or authorized representative at the time of entry or exit of goods. This individual must providethe required information to customs authorities and register details concerning the goods, accompanied baggage, transportation route, and supplies belonging to staff and passengers.
Customs Declaration
Any action or statement relating to specific information required by customs authorities, or information provided and accepted by customs, is referred to as a customs declaration.
- Currency Declaration: A currency declaration is issued when the parties intend to ensure financial transparency. This declaration specifies the domestic currency value, the date of opening the letter of credit, and the amount of foreign currency transferred for the purchase of goods.
- Warehouse Area: A designated location within customs and commercial contexts. It is designed to protect goods from snow, rain, and direct sunlight.
- Cargo Tallying: The process by which customs officers conduct inventory counts during the clearance or unloading of goods.
- Pro Forma Invoice: A pro forma invoice is a purchase document issued by the seller as a sales offer or to specify value and sales conditions at the time of origin. Approval of this document prior to ordering goods from the relevant supply and distribution center is essential.
- CRF: CRF is a customs document in which the price of goods at origin is stated and is issued by commercial institutions.
- SD Form: In the SD form, the manufacturer formally declares in writing that the goods were produced in compliance with the required standards.
Frequently Asked Questions About Commercial and Customs Terminology
Knowledge of these terms is essential for traders and individuals involved in import and export activities, as it facilitates understanding of customs and commercial procedures and helps prevent errors in communications and documentation.
The customs value of exported goods is determined by the exporter based on official government reference price lists, while the value of imported goods is announced by the Central Bank. These values are important for calculating taxes and foreign currency obligations.
Transport documents include the transport contract, document of title, and receipt of goods. They are essential for insurance and customs clearance and contain information such as goods descriptions, vessel names, commercial marks, carrier details, ports of loading and discharge, and the date of issuance.
A customs declaration refers to any statement or action concerning goods information required, recorded, or accepted by customs authorities, including details of the goods, transportation route, consignor, and consignee.
Important terms include currency declaration, warehouse area, cargo tallying, pro forma invoice, CRF, and the SD form, each of which plays a key role in customs clearance, documentation, and verification of goods. Why is familiarity with commercial and customs terminology important?
How are the customs values of exported and imported goods determined?
What are transport documents, and what information do they contain?
What is a customs declaration?
What other important terms should traders be familiar with?
If my contract doesn’t mention any Incoterm, how do they decide who’s responsible for shipping costs?
If an Incoterm is not included, the contract itself and the applicable law will usually determine each party’s responsibilities. That can create uncertainty and increase the risk of disputes, which is why clearly identifying the chosen trade term is generally recommended.
Can buyers and sellers change part of an Incoterm if they both agree?
The parties can agree on additional contractual obligations, but they should be careful not to create inconsistencies with the selected Incoterm. Any modifications should be written clearly so there is no confusion later about risk or cost allocation.
Does using the wrong Incoterm ever cause customs delays?
Yes, it can. An inappropriate trade term may create misunderstandings about who is responsible for customs clearance or required documentation, which can contribute to delays and unexpected expenses.
I mostly sell online to customers overseas. Do Incoterms still matter for smaller shipments?
They certainly can. The size of the shipment does not determine whether an Incoterm is useful. Whenever goods cross borders, clearly defining responsibility for transportation, customs, and risk can help avoid disputes between the parties.
If my supplier picks the shipping company, does that automatically mean they’re responsible if something gets damaged?
Not necessarily. Responsibility for damage depends on the specific Incoterm chosen and the point at which the risk transfers from the seller to the buyer. Reviewing the contract carefully is essential before reaching any conclusion.
Can customs authorities ignore the Incoterm if they think something was declared incorrectly?
Incoterms help define contractual responsibilities between buyers and sellers, but they do not override customs laws or regulatory requirements. Customs authorities may still examine declarations independently under the applicable legal framework.
Is DDP always the safest option for the buyer?
DDP can reduce certain responsibilities for the buyer, but it is not automatically the best choice for every transaction. The appropriate trade term depends on the nature of the deal, the countries involved, and each party’s ability to manage logistics and compliance.
What if the invoice says one Incoterm but the purchase agreement says something different?Niloofar
Conflicting documents can create uncertainty about the parties’ obligations. In that situation, it is important to review the complete transaction documents to determine which terms control and whether clarification is needed. If this has happened in your transaction, a legal review would be advisable.
Are Incoterms only for international shipments, or can companies use them for domestic sales too?
Although they are best known for international trade, Incoterms can also be used in domestic transactions when the parties want a standardized way to allocate costs, risks, and delivery responsibilities.
If a contract just says FOB without naming a location, is that enough?
Usually, the named place or port is an important part of using an Incoterm correctly. Omitting that detail may create uncertainty about when delivery occurs and when the risk transfers. If your contract contains incomplete trade terms, it is worth having it reviewed before a dispute arises.