Set Up Preference Processing to Delineate Customs Tariff Priorities and Manage Risk with Global Sourcing

  • by Rajen Iyer, Cofounder and CTO, Krypt, Inc.
  • November 15, 2008
This walk-through of the configuration steps for Preference Processing within SAP GRC Global Trade Services Risk Management shows how to address tariff preferences in your trade application and systems. It includes setting up the communication between SAP GRC Global Trade Services and SAP ERP Central Component.
Key Concept

Duty and restriction applies to goods imported into a country. Countries promote goods movement for products with countries with whom they have trade agreements. Duty rates and preference rules apply to a Harmonized Tariff Number, which comes from the Harmonized Tariff System (HTS), a numbering system used by the international trade community as a common understanding for importing and exporting. A duty rate could be a percentage of the price of the part or a fixed rate, tied to the HTS (Number) and the country of origin. These are also delivered as content by the content provider along with corresponding HTS codes. The amount of duty rate, or not, applies to the preference rules that apply to the specific HTS and the country of origin.

Preference Processing in GRC Global Trade Services Risk Management helps exporters fulfill all the legal requirements for customs tariff preferences and show that their goods are eligible for preferential treatment. This enables their customers to import these goods either duty free or at a reduced rate of import duty. By providing evidence of eligibility for preferential treatment, exporters gain significant competitive advantages.

Preference Processing involves maintaining:

  • Vendor declarations
  • Materials or bills of material (BOMs)
  • The result of the threshold value for preferential treatment
  • The threshold value of the product as compared to its ex-works price (i.e., the price quoted by the seller for delivery to the predefined location — for example, up to the buyer’s door and there onwards, it is the buyer’s responsibility)

If you have a BOM, the preferential status is set for the main component in the product master. The system determines the results and saves them for each main component. On the sales document, you can compare the determined threshold value with the ex-works price and determine the preference situation for the current delivery. The ex-works price must be greater than or equal to the threshold value. If the system determines a positive preference status, it allows you to print a preferential statement.

Vendor Declarations Management, a part of Preference Processing, provides functionality for requesting vendor declarations and sending reminders. You can request vendor declarations via email, XML, or supplier self-service. You need to update these vendor declarations into the system and the system then allows you to aggregate them. The system also allows you to issue vendor declarations for the customer’s purposes or revoke them.

For declaration to customs, you need to classify the goods according to a numbering schema. The numbering schema for the European Union is called combined nomenclature. You declare imported and exported goods starting under which subheading of nomenclatures they fall. This determines which rate of customs duty applies and how the goods are treated for statistical purposes. GRC Global Trade Services Risk Management provides functionality to configure for North America Free Trade Agreement (NAFTA) and EU Trade Agreement.

Rajen Iyer

Rajen Iyer is the cofounder and CTO at Krypt, Inc. Rajen has written several in-depth, best practice articles, white papers, patents, and best-selling books on SAP Logistics and SAP Global Trade Services, including Effective SAP SD and Implementing SAP BusinessObjects Global Trade Services. He is also an invited speaker at industry conferences.

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