About “The importance of Bonded at trade job” !
Explained about the importance of Bonded at Trade Job by Video
This video takes 5min. and 15sec. !
Hello, it’s IINO.
In this video, I would like to explain why Bonded is important in trade job.
For beginners in trade, we explained “Basics knowledge of Bonded Logistics” in the other video. You can find a link to it in the overview section, if you want to learn the basics.
When you import cargos, you generally have to pay taxes
When you import cargos, you generally have to pay taxes (customs duty and consumption tax). However, in the case that the importing cargo is in Bonded Status, it means that you have not yet paid any taxes. This point is very important.
In today’s trade, we don’t only import and export of products and raw materials. There is also called “Processing Trade”, which each part is made or purchased in different countries, and then turned into finished products in another country.
About Processing Trade
Let me explain the key points of Processing Trade in more detail.
When manufacturers procure materials, it is sometimes more cost effective to source from countries, with lower production costs than to source domestically.
After that, they turn them into finished products and exports abroad (to third countries). It is Processing Trade.
In the case of Processing Trade, which does not offer tax incentives, taxes are charged when materials are imported. And, when the final product is imported to another country, taxes are charged as well. It makes the price of the final product inevitably higher.
If the price of a product is too high, the price competitiveness becomes low, and harder to sell.
In case Processing Trade of vehicle production
Let’s take the example of vehicle production.
It assumes that the tires come from country A, the steering wheel from country B, and the brakes from country C, then the final assembly is done in Japan, and the finished car is then sold to the USA.
In this case, each part such as tires, steering wheels, and brakes are imported and taxed (custom duty and consumption tax) in Japan, and then the finished car is subject to import taxes in the US.
Then problem can be occurred, that they’re pricey and hard to sell compared to American domestic cars!
Processing Trade using bonded
In order to avoid such a situation, Bonded is used in Processing Trade. This is where Bonded Warehouse and Bonded Factory come into play, as shown in the video explaining Bonded Area.
In Thailand, this includes factories and warehouses in Free Zone.
I explained at the beginning that, the importing cargo is in Bonded Status means that you have not yet paid any taxes (custom duty or consumption tax).
If you process goods in this Bonded Status, and export them directly to other countries, you can trade without paying taxes on the parts and materials.
Of course, custom duties and consumption taxes for the final product, will be incurred in other countries, but there will be a price advantage compared to not using Bonded, and it will give you a competitive edge.
Various type of processing
There are many types of processing depending on the product.
Some products, such as automobiles, are processed using large equipment, while others are processed simply to change the tag on a garment.
In addition, there are even re-export, after being sorted and repackaged in Bonded Status.
Sort and repack at Bonded Warehouse
For example, there is a business to imports used clothes in a bag from Cambodia to Thailand, sorts out specific brands, and sends them to Malaysia.
At this time, to avoid import tax in Thailand, if you sort and repack the products in Bonded Warehouse in Thailand, and export them, it will be cheaper than paying tax doubly in Thailand and in Malaysia.
Bonded of products for international exhibition
In addition, let’s talk about exhibition cargo.
In an international exhibition, each company exhibits its products in various countries. Since the purpose of the exhibition is to display, not sell, therefore the products must be returned to each country, after the exhibition is over.
At this time, it would be a problem if import duties and consumption taxes were applied, so it is common to use a Bonded Exhibition Place, or to import cargos without being taxes by using the ATA carnet system.
As you see, today’s international trade has a system, that allows for beneficial trade transactions using Bonded.
I’ll be updating video from time to time, about useful knowledge of trade and logistics, so I hope you subscribe it and learn together.
That’s all for this time! Thank you very much!
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