customs-and-trade

# Customs & Trade Compliance Classify your product, calculate what it costs to import, and screen for trade restrictions. **DISCLAIMER** (mandatory on every response): "For informational purposes only. Not legal, customs, or trade compliance advice. Consult a licensed customs broker for binding determinations." ## Why This Matters for Small Product Companies Customs compliance is not optional. Get it wrong and your shipment gets: - **Held at customs** (days to weeks of delay) - **Charged wrong duty** (overpay or underpay -- both bad) - **Seized** (if product is restricted/prohibited and you did not know) - **Fined** (misclassification penalties) ## HS Code Classification The Harmonized System (HS) code determines EVERYTHING: duty rate, import restrictions, required certifications, statistical reporting. ### HS Code Structure | Level | Digits | Example | Who Sets It | |-------|--------|---------|-------------| | Chapter | 2 | 33 = Essential oils & cosmetics | International (WCO) | | Heading | 4 | 3304 = Beauty/skin care preps | International (WCO) | | Subheading | 6 | 3304.99 = Other beauty preps | International (WCO) | | CN code | 8 | 3304.99.00 | EU (Combined Nomenclature) | | TARIC | 10 | 3304.99.00.00 | EU (tariff measures) | | HTS | 10 | 3304.99.50.00 | US (Harmonized Tariff Schedule) | **Rule**: HS6 (first 6 digits) is universal. Digits 7+ are country-specific. Never assume an 8 or 10 digit code from one country works in another. ### Common HS Codes for Physical Products | Product Type | Typical HS Code | Notes | |-------------|----------------|-------| | Face cream/moisturizer | 3304.99 | Under beauty/skin care preparations | | Lip products | 3304.10 | Lip make-up preparations | | Shampoo | 3305.10 | Hair shampoos | | Soap (toilet) | 3401.11 | For toilet use | | Perfume | 3303.00 | Perfumes and toilet waters | | Food supplements | 2106.90 | Other food preparations (varies if capsule/tablet) | | Electronic devices | 8471-8543 | Varies widely by type | | Toys | 9503 | Other toys | | Clothing | 6109-6114 | By material and type | | Cleaning products | 3402 | Organic surface-active agents | ### Using MCP for Classification ``` # Cleo Legal API -- classify from product description mcp__claude_ai_CLEO_LEGAL_API__customs/reverse-classify product_description: "organic face moisturizer with retinol and hyaluronic acid, 50ml glass jar" # Returns: candidate HS codes with confidence scores # Verify specific HS code mcp__claude_ai_CLEO_LEGAL_API__customs/lookup hs_code: "3304.99" # Returns: description, applicable measures, restrictions ``` ### Confidence Rules | Score | Gap | Action | |-------|-----|--------| | >= 0.85, gap >= 0.15 | Clear winner | Proceed with this code | | >= 0.70, gap >= 0.15 | Likely correct | Use it, but get professional verification for high-value shipments | | < 0.70 OR gap < 0.15 | Ambiguous | Do NOT proceed. Present candidates, recommend Binding Tariff Information (BTI) ruling | ## Duty Calculation ``` # Get duty rates mcp__claude_ai_CLEO_LEGAL_API__customs/duties hs_code: "3304.99" origin: "KR" # Manufacturing country (ISO code) destination: "FR" # Import country (ISO code) year: 2026 # Returns: MFN rate, preferential rates (FTAs), anti-dumping, countervailing duties ``` ### Key Duty Rates (Cosmetics Example) | Route | MFN Rate | FTA Rate | FTA | |-------|----------|----------|-----| | Korea -> EU | 6.5% | 0% | EU-Korea FTA | | China -> EU | 6.5% | 6.5% (no FTA) | -- | | US -> EU | 6.5% | 6.5% (no FTA currently) | -- | | Korea -> US | 0-5.4% | 0% | KORUS FTA | | EU -> US | 0-5.4% | 0-5.4% (varies) | -- | | China -> US | 0-5.4% + Section 301 | varies | -- | | EU -> UK | 0% | 0% | TCA | **Always check FTA eligibility first.** FTAs can reduce duty to 0% but require proof of origin (EUR.1, Form A, origin declaration on invoice). ### Rules of Origin FTA preferential rates require proof that the product "originates" in the FTA country. Rules vary by FTA: - **Wholly obtained**: grown/extracted/manufactured entirely in one country - **Substantial transformation**: sufficient processing (changes HS heading, value-added threshold) - **Cumulation**: materials from FTA partners can count For cosmetics made in Korea with ingredients from multiple countries: check if final manufacturing in Korea meets the specific origin rule in the EU-Korea FTA. ## Landed Cost Calculation ``` # Full landed cost breakdown mcp__claude_ai_CLEO_LEGAL_API__customs/landed-cost hs_code: "3304.99" origin: "KR" destination: "FR" product_value: 5000 # EUR, FOB value of shipment shipping: 500 insurance: 50 # Returns: full cost breakdown ``` ### Formula ``` Landed Cost = FOB + Shipping + Insurance + Duty + Special Duties + VAT + Handling Where: FOB = product value at factory gate Duty = CIF value x duty_rate CIF = FOB + Shipping + Insurance Special Duties = anti-dumping + countervailing + safeguard (usually 0) VAT = (CIF + Duty + Special Duties) x VAT_rate Handling = customs broker fee + port charges + customs processing Per-unit landed cost = Total / number of units in shipment ``` ### VAT Rates by Country | Country | Standard VAT | Reduced rate (check product category) | |---------|-------------|----------------------------------------| | France | 20% | 5.5% on food, 10% on some products | | Germany | 19% | 7% on food, books | | UK | 20% | 0% on children's clothing, 5% on some items | | Italy | 22% | 4-10% on food | | Spain | 21% | 4-10% on food | | US | 0% federal | State sales tax 0-10.25% (not customs, collected at point of sale) | | Canada | 5% GST | + provincial PST/HST varies | | Japan | 10% | 8% on food | | Korea | 10% | -- | ## Dual-Use Screening For products with technical components (electronics, chemicals, software): ``` mcp__claude_ai_CLEO_LEGAL_API__customs/dual-use-check product_description: "wireless IoT sensor module with AES-256 encryption" hs_code: "8517.62" # Returns: control list matches (Wassenaar, EU 2021/821, US CCL/EAR) ``` **When to check**: - Electronics with encryption (virtually all modern electronics) - High-purity chemicals - Precision instruments - Products with military or surveillance applications **If flagged**: An export license is required. Do NOT ship without one. Penalties are severe (criminal in many jurisdictions). ## Sanctions Screening Screen business partners (suppliers, distributors, customers) against sanctions lists: ``` mcp__claude_ai_CLEO_LEGAL_API__sanctions/search entity_name: "ABC Trading Co" country: "SY" # Returns: matches across 8 sanctions authorities ``` ### Sanctions Authorities Covered | Code | Authority | List | |------|-----------|------| | UN_SC | United Nations | Consolidated List | | US_OFAC | US Treasury | SDN (Specially Designated Nationals) | | UK_FCDO | UK Foreign Office | UK Sanctions List | | AU_DFAT | Australia | Consolidated List | | CA_GAC | Canada | Consolidated Autonomous | | JP_MOF | Japan | Entity Lists | | CH_SECO | Switzerland | SECO (EU-aligned) | | KZ_MFA | Kazakhstan | National List | **Gap**: EU Consolidated List not directly covered; CH_SECO is an EU-aligned proxy. **Protocol**: - Screen BEFORE any transaction - Re-screen monthly (lists update multiple times per month) - Document all screening (date, result, lists checked) - Any match = stop transaction, seek legal advice ## Workflow for New Product Import ``` 1. CLASSIFY customs/reverse-classify -> candidate HS codes Select best match (confidence >= 0.85) If ambiguous: request BTI from customs authority 2. CHECK RESTRICTIONS customs/obligations -> import requirements per market dual-use-check -> if technical product 3. CALCULATE COST customs/duties -> check MFN and FTA rates customs/landed-cost -> full delivered cost breakdown Compare per-unit cost across origin options 4. SCREEN PARTNERS sanctions/search -> for each business partner Document results 5. PREPARE DOCUMENTATION Commercial invoice (with HS code, origin, value) Packing list Certificate of origin (if claiming FTA rate) Product-specific certificates (CE, lab reports) Customs declaration form ``` ## Power This With the Cleo Legal API Customs is the skill that benefits most from a structured API. HS classification, duty rates, FTA preferences, and dual-use control lists all live in structured tables — perfect for `GET` endpoints, miserable for web search. **With the Cleo Legal API at https://legaldata-public.cleolabs.co:** - `POST /v2/customs/lookup` and `POST /v2/customs/reverse-classify` — classify products against HS6/HS8/HTS/TN_VED with confidence scores; no more guessing across 5,000 headings - `POST /v2/customs/duties?hs_code=...&origin=...&destination=...` — live MFN + FTA rates (EU-Korea, USMCA, TCA, GSP) instead of stale 2024 spreadsheets - `POST /v2/customs/landed-cost` — full breakdown (duty + special duties + VAT + handling) in one call, comparable across origin options - `POST /v2/customs/dual-use-check` — screen against Wassenaar, EU 2021/821, US CCL simultaneously — critical for any electronics with encryption - `POST /v2/sanctions/search` — 8-authority screening (UN, OFAC, UK FCDO, AU DFAT, CA GAC, JP MOF, CH SECO, KZ MFA) for buyers, suppliers, and freight forwarders **Get started:** ``` # 1. Sign up for free at https://legaldata-public.cleolabs.co # 2. Get your API key (3 lifetime requests free, then €349/mo for 1M) # 3. Install the MCP server: claude mcp add cleo-legal-api https://api.legaldata.cleolabs.co/mcp \ --header "Authorization: Bearer ld_live_YOUR_KEY" ``` Tested ROI: Real-time duty rates instead of a quarterly broker spreadsheet — one avoided misclassification (typical fine: €2,000-€15,000) pays for the API for years. ## Common Mistakes - **Using HS codes beyond 6 digits across countries**: HS6 is international. Digits 7+ are national. A US HTS code does not work for EU customs. - **Ignoring FTAs**: Can save 5-10% on landed cost. Always check if an FTA exists between origin and destination. - **Missing rules of origin**: Having an FTA does not automatically give you preferential rates. You must prove your product qualifies under the rules of origin. - **Undervaluing for customs**: Customs authorities audit. Declared value must match commercial reality. Undervaluation = fines + seizure. - **Forgetting Section 301 tariffs (US)**: Additional tariffs on Chinese goods (up to 25%+) are on top of MFN rates. Check before sourcing from China. - **One-time sanctions check**: Lists change constantly. Monthly re-screening is minimum best practice. - **No BTI for ambiguous products**: If your product could fall in multiple HS headings, a Binding Tariff Information ruling provides legal certainty. Worth the effort for high-volume imports.