Treaty preference self-check: run it before every shipment

01Three ways this goes wrong, and none of them is the rate

When treaty preference fails, it is almost never because someone looked up the wrong rate. The real failures are these three:

• The origin rule does not actually hold. Key components come in from a third country and the goods are assembled in China, but the value added or the depth of processing does not reach what that tariff heading requires. Even with the certificate issued, customs may still refuse the preference on review.
• The documents do not agree. Description, specification and quantity on the certificate do not match the invoice; shipper and consignee do not match the bill of lading; certificate number and issue date do not match what was declared; the relationship between the date of issue and the date of shipment does not meet the requirement. Found before shipping, it is a document amendment; found after arrival, it is demurrage and back duty.
• Treating "preference" as "exemption". Preference reduces customs duty. It does not remove import VAT, and where the goods fall in an excisable category, excise is payable as well. A landed-cost calculation built on "we have a Form E, so nothing is payable" comes out clearly too low.

All three have one thing in common: the later you find it, the more it costs. So the sheet is not built to explain things afterwards. It moves the judgement back to before the order and before shipment. It is a working paper for our advisers to fill in together with your purchasing and finance people — not a ready-made answer, and not a substitute for the formal opinion our advisers issue on the facts of the case.

02What the four tabs cover

Four tabs, ordered the way one shipment moves forward. All four run on the same key — shipment number / bill of lading number — so for the second shipment you copy the same set of rows and fill in the new number:

• Per-shipment eligibility gate: seven pre-shipment checks — was the tariff heading settled before the order went out, was the right agreement and certificate type chosen for the country of origin, does the origin rule actually hold, has the supplier been given the list of document requirements, has the draft declaration been pre-checked, was the landed cost worked out on the basis that only duty comes down, has the choice of channel been recorded. The overall result of the seven goes back into the status column of the log.
• Certificate of origin data check: copy out the description, specification, quantity, shipper, consignee, certificate number and issue date from the certificate, then name the document each of them has to match.
• Choice of channel: duty-exemption privileges, treaty preference and the normal rate are mutually exclusive, and one shipment takes one channel. Six questions produce a first read for that shipment — a first read, not a determination; our advisers still check it before shipping.
• Per-shipment log: which channel this shipment took, on what reasoning, decided by whom, plus two further columns for the internal reporting date and the person responsible, so it works as an internal control record as it stands.

03If you also hold promoted status, settle the channel before the certificate

Importing under duty-exemption privileges and importing under treaty preference are two different channels, and each shipment can take only one. Equipment on the machinery list submitted for approval and already approved goes through the privileges channel; anything not on the list, or where approval will not come through in time, is then assessed for treaty preference; where neither applies, duty is paid at the normal rate. Decide it shipment by shipment and keep the record — do not apply one blanket rule.

The two channels cover different taxes, so the budget basis differs as well: the privileges channel exempts import duty and import VAT, and excise sits outside that exemption; treaty preference is narrower — it only reduces duty, and import VAT plus excise on excisable goods are still payable. We checked one figure on a live project: on a batch of equipment for a data centre project, duty and VAT were exempted under the privileges, but the battery portion still carried excise actually paid in seven figures. If that money is not in the budget, the cash position on the day the goods arrive looks bad. The sheet writes into its notes what each of the three channels covers, so that costings are not built on "all exempt".

04How to use the sheet

Three steps. First, settle the tariff heading before the order is placed — the heading decides which set of origin rules applies, decides the gap between the normal rate and the preferential rate, and decides whether this shipment is even worth the effort of obtaining a certificate. Second, work through the eligibility gate and the certificate data check before shipping, pre-check the draft declaration, and only arrange shipment once it is confirmed. Third, leave one line in the log for every shipment: which channel, on what reasoning, who decided it, and when.

Read the two kinds of cell differently. The cells shaded amber are the ones our advisers have to settle before anything goes in them — most typically "does the origin rule hold" and the first read for each shipment. Please do not tick those yourself. The blank cells are the working columns for you, purchasing and finance: shipment number, the certificate details copied across, checked-by, person responsible, date. Fill in what you can, and send the whole sheet over with whatever you could not fill in or could not tick.

Two more things are easy to forget. Give the supplier a list of document requirements, setting out the certificate fields, the fields that must agree with the other documents, and the timing requirement for issue — do not assume the other side knows what Thailand expects, particularly a supplier exporting to Thailand for the first time. And preferential rates get adjusted, with different reduction schedules by heading, so long-term costings should follow the announcements in force and keep an eye on whether the heading itself has changed.

Which heading your goods fall under, whether they can meet the origin rule, and which channel works out better all have to be judged shipment by shipment against the composition of the goods, the production process and the actual sailing date. It is worth running one round before the purchase contract is signed.