Delivered Duty Paid: An Incoterm Exporters Should Use Carefully

The International Chamber of Commerce (ICC) has developed several publications providing sellers and buyers with guidance on the use of Incoterms 2010. My favorite is Incoterms rules, Publication No. 715e.

According to the ICC, Delivered Duty Paid (DDP) means:

[T]he seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport, ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

The ICC was succinct in its description of obligations for the seller in this paragraph. However, there’s more detail to consider for the seller and for the buyer when establishing a contract that references DDP.

In writing this article, I decided to exclude U.S. domestic transactions from the conversation. The focus of this article is on international transactions.

The seller and the buyer must agree upon a place; for a seller in the United States and the customer in Canada, it might be “DDP Motor Carrier Terminal, Winnipeg, MB, Canada.”

Under Incoterms 2010 rules, the seller has all the responsibility and risk and costs to an agreed destination. Are you ready to meet all of them?

7 Responsibilities of the Exporter Under DDP

First, the seller is to hire the carrier(s) ensuring delivery to the named destination and pay or pre-pay all associated transportation fees.

• Do you have an American or Canadian carrier with a terminal in Winnipeg where the goods may be stored until the buyer is able to arrange the final delivery?
• If there are storage charges incurred, does the buyer have a credit agreement with the carrier to ensure they are billed by the motor carrier you hired and not you?
• Is the carrier able to make a delivery for the buyer in Canada, then invoice the buyer for the final delivery?

Second, the seller retains risk of loss until the named destination.

• Does your firm have cargo insurance cover the risk of loss including force majeure and strikes, riots, and civil disturbances?
• In the event of a loss, how will you meet the customer’s requirements for a delivery?

Third, the seller must clear the goods for export. U.S. based sellers who export their goods to Canada face few U.S. government requirements. However, it is still necessary to:

• Screen all parties to the transaction against the U.S. government’s list of persons who are restricted to verify that they are not on the lists.
• Verify that the product does not require an export license; very few products being exported to Canada require a license, but validate one is not needed by examining the regulations. There are special products that require special permission to allow their export.
• Add the appropriate 15 CFR 30 notation on the international bill of lading. If the seller’s shipment is exempt from filing an Electronic Export Information (EEI), the notation is NOEEI 30.36. There are controlled products that trigger the filing requirement of an EEI. These items are listed in 15 CFR 30 or the Foreign Trade Regulations.
  

Fourth, the seller (or its agent) must clear the goods for import at destination.

• As a seller that quotes DDP, be ready for complying with customs requirements in another country. In Canada, it is possible for you to become a non-resident importer (NRI). An NRI is a company or individual who does not reside in Canada but elects to act as the Importer of Record (IOR) for a shipment, or shipments, imported into Canada. The IOR is responsible for all accounting related to the importation including, but not limited to, any duties and/or taxes payable to the Government of Canada as well as the maintenance of all records pertaining to each importation.
• An IOR may appoint a customs broker to act as their agent and transact business with the Canada Border Services Agency (CBSA) on their behalf. The CBSA requires agents to have written authority from the IOR such as an Agency Agreement or Power of Attorney. The IOR is ultimately responsible for all matters regardless if an agent was appointed.
• Identify which Canadian government agencies have jurisdiction over your product in the event special labeling, registrations, or additional permit or licensing fees are required.

Fifth, the seller will pay customs clearance fees, duty, and if applicable taxes.

• It is necessary for the American seller to classify its products within the Canadian Customs Tariff. The selected codes will determine the amount of duty owed. See http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/menu-eng.html.
• If there’s duty owed, is it possible to issue a NAFTA Certificate of Origin to reduce the duty to zero?

Sixth, the seller is to prepare documentation; each country has specific documentary requirements. As an NRI in Canada, here are yours:

• Commercial invoice with your U.S. and Canadian tax numbers.
• Packing list itemizing the weight, dimensions and cubic measure in metric.
• Canada Customs Invoice or CI-1 or add the required data elements to your commercial invoice.
• Inland bill of lading.

If you choose to issue a NAFTA Certificate of Origin, then add the document to the list along with your origination homework and classification database.

Finally, it is necessary to have your customs broker retain the documentation for six years and pay them a fee or obtain the documentation that allowed the goods to enter Canada for your retention.

Seventh, the seller is to meet the delivery at the named place “on the agreed date or within the agreed period” according to the ICC.

Are you truly ready to use DDP for your transactions? Maybe with the help of a courier company who can assist you in obtaining customs clearance in Canada or any other country. Even so, the obligations of DDP can be daunting.