Impact of import declaration timing on customs duties

Usually, the tariff rate applicable to a HS Code doesn’t change throughout a year.

However, when it comes to agricultural products, depending on when they are imported, the applicable tariff rate can be different drastically.

For example, fresh or chilled potatoes that are not for seed are classified in 0701.90-0000 in Korea. For 0701.90-0000, the applicable tariff rates in 2023 are as follows:

Tariff Rate Code	Tariff Rate Description	Tariff Rate (%)
W1	WTO tariff rate for the goods recommended by Korea Agro-Fisheries & Food Trade Corporation (Recommendable total weight: 18,810 tons)	30%
W2	WTO tariff rate for the goods not recommended by Korea Agro-Fisheries & Food Trade Corporation	304%
P1	Quota tariff rate applicable for May 1, 2023 to November 30, 2023 only to the goods for making potato chips recommended by Korea Food Industry Association (Recommendable total weight: 12,810 tons)	0%
FGB1	KR-UK FTA tariff rate	304%
FEU1	KR-EU FTA tariff rate	304%
FTR1	KR-Türkiye FTA tariff rate	304%
FIL1	KR-Israel FTA tariff rate	304%
FCN1	KR-China FTA tariff rate	304%
FAS1	KR-ASEAN FTA tariff rate	243.2%
FVN1	KR-Viet Nam FTA tariff rate	243.2%
FKH1	KR-Cambodia FTA tariff rate	243.2%
FAU1	KR-Australia FTA tariff rate applicable to others	304%
FAU2	KR-Australia FTA tariff rate applicable for May 1, 2023 to November 30, 2023 only to the goods for making potato chips	101.3%
FAU3	KR-Australia FTA tariff rate applicable for January 1, 2023 to April 30, 2023 and December 1, 2023 to December 31, 2023 only to the goods for making potato chips	0%
FNZ1	KR-New Zealand FTA tariff rate applicable to others	304%
FNZ2	KR-New Zealand FTA tariff rate applicable for May 1, 2023 to November 30, 2023 only to the goods for making potato chips	121.6%
FNZ3	KR-New Zealand FTA tariff rate applicable for January 1, 2023 to April 30, 2023 and December 1, 2023 to December 31, 2023 only to the goods for making potato chips	0%
FCA1	KR-Canada FTA tariff rate applicable to others	304%
FCA2	KR-Canada FTA tariff rate applicable for May 1, 2023 to November 30, 2023 only to the goods for making potato chips	228%
FCA3	KR-Canada FTA tariff rate applicable for January 1, 2023 to April 30, 2023 and December 1, 2023 to December 31, 2023 only to the goods for making potato chips	0%
FUS1	KR-US FTA tariff rate applicable to others	304%
FUS2	KR-US FTA tariff rate applicable for May 1, 2023 to November 30, 2023 only to the goods for making potato chips	114%
FUS3	KR-US FTA tariff rate applicable for January 1, 2023 to April 30, 2023 and December 1, 2023 to December 31, 2023 only to the goods for making potato chips	0%
FUS6	KR-US FTA tariff rate applicable to the goods recommended by Korea Agro-Fisheries & Food Trade Corporation (Recommendable total weight: 4,153 metric tons)	0%
FCO1	KR-Colombia FTA tariff rate	304%
FPE1	KR-Peru FTA tariff rate	304%

 

If you are a potato-chip maker and buy potatoes grown and harvested in Australia, the most favorable tariff rate is FAU3 for January 1, 2023, to April 30, 2023, and December 1, 2023, to December 31, 2023, and P1 for May 1, 2023, to November 30, 2023.

If it is not feasible to receive a recommendation from the Korea Food Industry Association, P1 is not applicable, and FAU2 shall apply for May 1, 2023, to November 30, 2023. This means that the tariff rate depends on the timing of import.

The timing of import refers to the time when the import declaration is filed with a customs office. It can become complicated when a vessel carrying the potatoes is scheduled to arrive in around April 30. Within a single day, the customs duties can range from 0% to 101.3%.

You may consider filing an import declaration prior to port entry because it can be filed from 5 days before the vessel enters Korea. However, it can be improper because it falls under the cases prescribed in Article 7 (2) of the NOTIFICATION ON PROCESSING AFFAIRS OF IMPORT CUSTOMS CLEARNACE (수입통관 사무처리에 관한 고시), where the import declaration must be filed after the goods have arrived in Korea.

NOTIFICATION ON PROCESSING AFFAIRS OF IMPORT CUSTOMS CLEARNACE  Article 7 (Requirements of declarations prior to port departure and declarations prior to port entry) (1)   Declarations prior to port departure and declarations prior to port entry can be filed 5 days (in the case of shipment by aircraft, 1 day) before the vessel, etc. loaded with the goods enters a port in Korea. (2)   In spite of the first paragraph, following goods shall be declared after the vessel, etc. arrives in Korea. Provided that, the goods of the first subparagraph are not such goods if the date when the vessel, etc. arrives in Korea precedes the date when the statute enters into force: 1.      Goods to which a statute requiring tariff rate increase or new import requirements applies or is scheduled to apply. 2.      Agricultural/fishery/livestock products or their processed products, for which 10-digit HS Code input in the import declaration shall be changed at the time of port entry. 3.      Agricultural/fishery/livestock products or their processed products, for which taxable unit (quantity or weight) input in the import declaration shall be changed at the time of port entry. (3)   If the vessel, etc. loaded with the goods for which the declaration prior to port departure or declaration prior to port entry has been accepted enters a port more than 5 days (in the case of shipment by aircraft, 1 day) after the import declaration due to inevitable reasons like bad weather, etc., the import declaration is deemed effective when it is proved through objective documentary evidence, etc. that the vessel, etc. arrived in Korea territory within 5 days (in the case of shipment by aircraft, 1 day) after the import declaration.

 

According to Article 2 of the Notification, the declaration prior to port entry means filing an import declaration after the vessel, etc. loaded with the imported goods leaves the port/airport of loading and before it enters a port. (The determination of the timing of port entry is based on the time when the declaration of unloading is filed after the final port entry report. If the declaration of unloading is filed before the port entry report, it is determined based on the time when the final port entry report is made.)

 

In addition, on July 24, 2019, the Minister of Economy and Finance gave an official response containing the interpretation about “the time when the vessel, etc. arrives in Korea”. It shall be construed as the time when the vessel, etc. reaches Korea territory like Korea territorial waters.

 

Therefore, the import declaration of the potatoes shall be filed after the vessel enters Korea territorial waters, the final port entry report is made, and the declaration of unloading is filed.

 

There was a potato-chip maker importing potatoes grown and harvested in Australia. Initially, he was advised that the vessel loaded with the potatoes was scheduled to enter the port in Korea at 17:00 on April 30, 2021. He filed an import declaration prior to port entry for the potatoes on April 30, 2021, which was accepted on May 6, 2021. However, the vessel entered Korea territorial waters on May 1, 2021, due to the port congestion. Afterwards, Customs found out that the final port entry report of the vessel was made on May 1, 2021, and issued a tax payment notice to collect the deficient tax amount after applying the FAU2 tariff rate.

It would be better if Customs pointed out that the import declaration prior to port entry was inappropriate and the import declaration for the potatoes should have been filed after the final port entry report without accepting the import declaration prior to port entry. However, the examination by Customs is not that thorough at the time of customs clearance. Errors tend to be found afterwards by comparing accumulated data.

 

The importer filed an appeal. As the import declaration prior to port entry was accepted by Customs by all means, the argument centered on the timing of filing an import declaration rather than the legitimacy of filing an import declaration prior to port entry. It was confirmed that the vessel was in the exclusive economic zone on April 30, 2021, and entered Korea territorial waters on May 1, 2021. The tax tribunal judge ruled that the timing of import declaration shall be determined based on the time when the vessel reaches Korea territorial waters and the final port entry report is made, and dismissed the importer’s claim (조심 2022관0140).

 

It is indeed embarrassing situation for the importer, who expected that the cargo would arrive in Korea before May 1, 2021. But that is the law unless this case goes to the Supreme Court and receives a different interpretation about the timing of import declaration.