UOM internal external reference in classification

Question

How is  UoM  necessary for the calculation that supports your sourcing decisions as well as for your declarations to the authorities?
Can anyone help with the UOM functionality for classification - why is it necessary to maintain Internal/external reference. Does the UOM overwrite UOM in ECC? What is the purpose of this UOM?

Answer 1

Hi Padma,
In each country, the Customs Tariff was primarily developed as a scale of charges for moving raw materials and traded goods across the borders.  However, and especially since the introduction of the Harmonised Tariff system (HS) in 1988, it has become a very convenient way of classifying and codifying goods in a language-independent way.
For that reason, other uses have been found for the Tariff; notably the production of Trade Statistics.  Every country is able to - and indeed does - collect and publish statistics on the movement of goods to and from other regions and countries, based primarily on the Import and Export declarations made and the Tariff (or "Commodity") codes assigned therein.  The importance of these Trade Statistics is one of the main reasons why Commodity Codes are required when making Export Declarations, even though no duties are liable on those movements.
The duty payable on Import is most usually based on the value of the goods.  But the value can (and does) vary greatly with time, so value is not necessarily a particularly good measure for statistical comparison.  Instead, the quantity of goods moved is a far better comparator for that purpose, and when you hear that "imports from China rose 23% last year", that figure is almost certainly based on quantity, not value.  For that reason, every Tariff Code is assigned at least one Unit of Measure.
By far the most popular UoM is the net mass (or weight) of the commodity being moved.  For most commodities, net mass is the only measure requested, so for consistency, most countries require it to be declared for ALL imported and exported items.  Due to that, any other units of measure are generally referred to as "supplementary" or "special" units.  The two other popular UoM are volume (e.g. Litres) for liquids, and Number of Pieces.  The latter UoM is particularly used for high-technology goods where both the value and weight are falling over time.
Coming back to Customs Duties; the most popular determination is by proportion of the assessed value - also known as "ad valorum" duty.  But for low-cost goods - particularly foodstuffs - duty may be chargeable according to the quantity imported - known as "specific" duty.  For some commodities, a combination of ad valorum and specific duties is charged.  Where the duty is not ad valorum, the quantity in the Customs UoM is needed in order to calculate the import duty, which often has a significant influence on sourcing decisions.
SAP software - both ECC and GTS - provides functionality to handle Customs UoM.  Since the net weight is a standard field in all logistics transactions, most Tariff Codes do not need anything extra.  But where supplementary units are specified, those UoM need to be assigned to the codes so that the Customs Declarations respond by ensuring that the associated quantities are provided.  In some countries, more than one additional UoM may be specified for some codes.  For example, some years ago, batteries used to need a declaration of weight, number of pieces, and number of cells.  SAP ECC can accommodate up to 2 additional UoM, and SAP GTS can accommodate up to 3.
In some countries, it is neccessary to state both the Quantity and the UoM in the Customs Declaration.  In others, the UoM for the supplementary unit is assumed, since it is mandated in the Tariff.  Where it must be stated, the UoM codes often do not correspond to the ISO codes so translation is needed.  SAP GTS provides that mechanism for matching Customs (external) UoM to SAP (internal) UoM.  If those relationships are maintained, then the system is able automatically to express the Product quantity in the Customs UoM.
In SAP GTS, specifying a supplementary unit for a Tariff or Commodity Code automatically opens up an additional field in the Declaration item screen when the Product has been classified with that Code.  And the standard incompletion code can ensure that the field is populated before the Declaration may be sent to the Customs Authority.
Data Providers understand the need for supplementary UoM, and their Tariff lists include them.  However, problems may occasionally arise when there are regional differences in the assigned units.  For example, in the EU, although the Customs Tariff is shared by all Member States, adjustments may be made on a national basis for Excise goods.  In those cases, it may be necessary to edit the data-files to meet the specific regional requirements.
Hope that helps.
Regards,
Dave