Navigating Turbulent Skies: Business Jets and Trade Wars
17 June 2019
Private air travel is a great time saver for those who can afford to indulge in the luxury of their own aircraft. Historically, private jets have been the preserve of the rich and famous but, in the last decade, more and more people are finding private aviation within their reach whether it be for business or pleasure.
Every country has a customs frontier: it’s one of the oldest ways of controlling the flow of goods and collecting duties. Normally, it is important to strike a balance on duties as otherwise it can create significant barriers to trade. However, the balancing act goes out of the window when trade wars begin and it can be costly and complex to navigate these issues.
Many years ago international conventions promoted the free movement of aircraft around the world and lots of countries signed up. Manufacturers of business jets promote the freedom of the skies and this is largely the case when passengers are on board and itineraries are well planned. However, when a business jet arrives in a foreign country, the customs officials may have a number of questions for you. Difficulties can occur when passengers are not on board and the aircraft is being repositioned for a sale, maintenance or other reasons. Airlines don’t face these problems because their flights are scheduled and planned well in advance.
So how is a visiting aircraft viewed by a local customs authority? In simple terms an aircraft is like any other product or goods arriving in a country from overseas, it’s imported into that country on a temporary or permanent basis. The aircraft itself has a commodity code for customs purposes and national customs authorities record the details of aircraft imported, exported, bought or sold in their own country which in turn forms part of their national trade statistics.
Certain organisations and international conventions have helped the free trade and movement of aircraft over the years. The emphasis of the World Trade Organisation has been on free trade and forging good trade partnerships between countries and the World Customs Organisation strives for minimal or zero tariffs and duties to promote free trade. This has worked reasonably well in the aviation world with big trading partners recognising the requirement to trade freely in aircraft and have open borders for the large airport hubs that exist today.
Most countries have their own policies on visiting aircraft, however the Instanbul Convention of 1990 went a long way to harmonising the approach to temporary admission of aircraft (amongst other things) and signed sixty nine contracting parties, including the EU.
Whilst the world wants to promote trade and bring down barriers to trade, countries and their governments still try to protect their industries which might mean tariffs and duties imposed on foreign goods being imported or in some cases where foreign manufactures receive state aid. Protectionism can spiral out of control and lead to trade wars which, whilst well intended for the home nation, can have a devastating effect on cross-border revenues.
A good example is in the high profile case of the Trump Administration threatening to impose duties of 292% on C Series aircraft manufactured by Bombardier in Canada destined for airlines in the US. This kind of behaviour by governments can have profound and far reaching effects. It is usual to have tax hikes or breaks that nibble away at individual take home pay or company profits but the immediate increase in duties from large economies like the US can send shock waves around the world. Fortunately for Bombardier the threat of duties was overturned by the US International Trade Commission.
So when does an aircraft cease to be a commodity? The short answer is it never ceases to become a commodity but when it goes into operation it becomes a means of transport for passengers or goods as well. The point here is that when you fly from one country to another you ought to be aware of the customs formalities including any tariffs or duties imposed on the value of the aircraft. It’s important to remember that customs procedures can vary if the aircraft is being used for passengers or if it’s repositioning for a sale or maintenance.
There may be no duty for aircraft in the country you enter but a filing requirement and big fines can exist for non-compliance. Once in a while aircraft owners and operators get into trouble with customs for non-compliance and the cost and disruption of an aircraft being temporarily seized can be considerable.
To ensure best practice, customs compliance aircraft owners and operators should plan their itineraries well in advance and engage with customs agents in each country they plan to visit.
If you have or are purchasing an aircraft operating across international borders, ZEDRA would be delighted to assist you.
For more information, please contact Andrew Wilson (ZEDRA’s Head of Aviation and Marine) at firstname.lastname@example.org