Sourcing wiring harnesses internationally: Incoterms, export and commodity code

Incoterms: what the rules govern

The Incoterms are delivery rules issued by the International Chamber of Commerce. The current version dates from 2020 and comprises eleven rules, each with a three letter abbreviation. They answer four questions: who arranges the transport, who pays for it, where the risk passes to the buyer and who handles the customs formalities.

What the rules do not govern matters just as much. Transfer of ownership, payment terms, warranty, applicable law and place of jurisdiction are not part of the Incoterms, they belong in the contract. A rule is also incomplete without a named place. The usual form is abbreviation, place, version, for example "FCA Kitzingen, Incoterms 2020".

EXW, FCA and DAP compared

In cable assembly, three rules come up above all. They differ in how far the supplier goes.

• EXW (Ex Works): the buyer takes over the goods at the supplier's works. The buyer arranges loading, transport, export and import and bears the risk from the moment the goods are made available. For the buyer this is the most far-reaching obligation.
• FCA (Free Carrier): the supplier hands the goods over, cleared for export, to the carrier named by the buyer. If this happens at the works, the supplier loads them onto the collecting vehicle. At any other place the goods count as delivered as soon as they stand ready for unloading.
• DAP (Delivered at Place): the supplier brings the goods at its own cost and risk to the agreed place at the buyer. Unloading, import clearance, duties and import taxes remain with the buyer.
• CPT and CIP: the supplier pays for the transport to the destination, but the risk passes as early as the handover to the first carrier. With CIP the supplier also takes out transport insurance.
• DDP (Delivered Duty Paid): the supplier additionally takes on import clearance, duties and import taxes. That requires the supplier to be able to act in the country of destination, which is why it is rare.

A common stumbling block lies in EXW: formally the buyer is responsible there for the export declaration. A buyer based outside the EU, however, cannot readily take on that role in the customs territory of the EU. For cross-border business the International Chamber of Commerce therefore recommends FCA instead of EXW.

Export declaration: who declares, and when

Within the EU there is no customs declaration. What counts here is VAT, that is the intra-Community supply with a valid VAT identification number and proof of where the goods have ended up, and above certain thresholds the Intrastat statistical declaration.

If the goods leave the customs territory of the EU, for example to Switzerland, Norway, the United Kingdom or overseas, an electronic export declaration is required. In Germany it runs through the ATLAS IT procedure. The declaration is given a movement reference number (MRN) that accompanies the shipment. Once the goods have left the EU, the exit note confirms the export. It is at the same time the evidence that the delivery may remain exempt from VAT.

Simplifications are provided for small shipments, at present up to a value of 1,000 euros and 1,000 kilograms per shipment. Who makes the declaration follows from the agreed Incoterms rule. Only a party established in the customs territory of the Union can act as the exporter. Thresholds and procedures change; what counts are the details published by the customs administration.

Export control applies regardless of all this. Whether an authorisation is needed depends on the goods, on the country of the recipient, on the recipient and on the intended use. Among the things checked are the Dual-Use Regulation of the EU, national lists and sanctions. This also concerns cable sets if they are intended for a listed application.

Commodity code: chapter 85, heading 8544

Every product needs a number in the customs declaration. The first six digits come from the worldwide Harmonised System (HS), digits seven and eight from the Combined Nomenclature of the EU. For export from Germany eight digits have to be given, for import eleven. Assembled cables and wiring harnesses belong as a rule in chapter 85 and there in heading 8544.

• Heading 8544: insulated wire, cable and other insulated electric conductors, whether or not fitted with connectors
• 8544 30: ignition wiring sets and other wiring sets of a kind used in vehicles, aircraft or ships
• 8544 42: other electric conductors for a voltage not exceeding 1,000 volts, fitted with connectors
• 8544 49: other electric conductors for a voltage not exceeding 1,000 volts, not fitted with connectors
• 8544 60: electric conductors for a voltage exceeding 1,000 volts

Classification depends on the specific product. A wiring harness supplied as part of an assembly can fall under an entirely different heading. Responsibility for the number lies with whoever makes the declaration. Anyone who needs certainty applies for Binding Tariff Information; it binds the customs offices of the entire EU. Which number comes into question for your part is best discussed with us and with your customs agent at an early stage.

Origin: proof of preferential origin and supplier's declaration

The origin decides whether customs duty is payable in the country of destination. Two terms have to be distinguished. Non-preferential origin states which country a product comes from in commercial law terms; it is usually proven with a certificate of origin from the chamber of industry and commerce. Preferential origin decides on tariff advantages under a free trade agreement of the EU, for example with Switzerland, Norway, the United Kingdom, Canada, Japan or South Korea.

A product has preferential origin only if it meets the rule of the respective agreement for its heading. Usually this is about the share of non-originating materials that is allowed, or about whether the commodity code changes through the processing. Depending on the agreement, origin is proven with a movement certificate EUR.1 or with a declaration on the invoice. Up to a consignment value of 6,000 euros any exporter may give this declaration, above that only with an authorisation as an approved exporter or as a registered exporter.

Before a manufacturer can declare the origin at all, it needs supplier's declarations from its own upstream suppliers. A long-term supplier's declaration covers all shipments in a period of up to two years. If such declarations are missing for cables, contacts and connectors, no proof of preferential origin can be issued, even if manufacturing takes place in Germany. More on what manufacturing in Germany involves is in the article Cable assembly from Germany.

Which documents accompany a shipment

Which papers are needed depends on the country of destination, on the Incoterms rule and on the agreement. This is the usual set:

• Commercial invoice with a description of the goods, commodity code, country of origin, value and the agreed Incoterms rule
• Delivery note and packing list with the number, dimensions and weights of the packages
• Export declaration with a movement reference number (MRN), as soon as the goods leave the EU
• Proof of preferential origin or certificate of origin, if the country of destination or the buyer needs it
• Test and measurement reports, initial sample inspection report or material certificates, where agreed
• Marking of the packages to IPPC (ISPM 15) if wooden packaging is used

What belongs on the wiring harness itself, that is the part number, revision status, serial number or code, is described in the article Cable marking. Which reports and records are possible is set out on the page Testing & documentation.

What to clarify before the quotation

Powertune has been manufacturing in Kitzingen since 2006 and delivers to the DACH region and worldwide. The quality management system is certified to ISO 9001:2015, and the certificate is available on the page Documents. Which delivery term, which documents and which deadlines apply to a specific project depends on the country of destination and on the scope. That belongs in the quotation and the order confirmation and cannot be answered in general terms on a website.

In your enquiry, therefore, state the delivery address and country of destination, your preferred Incoterms rule or your forwarder, the records you need as well as your target date and call-off quantities right away. Then we can say at an early stage what is possible and what still needs to be clarified.

This article explains terms and does not replace customs or legal advice. What else belongs in an enquiry is summarised by the enquiry checklist. The path from the enquiry to the delivery is shown on the page How a project works; drawings, parts lists and sketches reach us through the enquiry form.