How Import Duty EU Affects Your Business: A Comprehensive Guide
If you are a business owner who trades with the European Union (EU), you may have heard of import duty. Import duty is a tax that is levied on goods that are brought into a country from another country. Import duty can affect the cost, profitability, and competitiveness of your products in the EU market. In this article, we will explain what import duty is, how it is calculated, and how it affects your business. We will also provide some tips on how to reduce or avoid import duty when trading with the EU.
What is Import Duty?
Import duty is a type of customs duty that is charged on goods that are imported into a country. Customs duties are taxes that are imposed by a government on goods that cross its borders. Customs duties can have different purposes, such as:
- Protecting domestic industries from foreign competition
- Raising revenue for the government
- Regulating trade and enforcing trade agreements
- Protecting public health, safety, and environment
Import duty is usually based on the value, weight, or quantity of the goods that are imported. The rate of import duty can vary depending on the type and origin of the goods, as well as the trade agreements between the importing and exporting countries.
How is Import Duty Calculated?
The calculation of import duty depends on several factors, such as:
- The tariff classification of the goods
- The customs value of the goods
- The origin of the goods
- The preferential trade arrangements between the importing and exporting countries
The tariff classification of the goods is based on the Harmonized System (HS), which is a standardized system of codes and descriptions for thousands of products that are traded internationally. The HS is maintained by the World Customs Organization (WCO) and is used by most countries in the world. The HS consists of six-digit codes that identify the product category, subcategory, and specific product. For example, the HS code for coffee beans is 0901.11.
The customs value of the goods is the amount that is used to calculate the import duty. The customs value can be based on different methods, such as:
- The transaction value, which is the price paid or payable for the goods when sold for export
- The adjusted value, which is the transaction value plus or minus certain adjustments, such as freight, insurance, commissions, royalties, etc.
- The deductive value, which is based on the resale price of the goods in the importing country minus certain deductions, such as profit, taxes, etc.
- The computed value, which is based on the cost of production of the goods plus certain additions, such as profit, overheads, etc.
- The fallback value, which is based on any other reasonable method that is consistent with the principles of the WTO Agreement on Customs Valuation
The origin of the goods is the country where the goods are wholly obtained or produced, or where they undergo their last substantial transformation. The origin of the goods determines whether they are eligible for preferential treatment under trade agreements or other schemes. For example, if you import goods from a country that has a free trade agreement (FTA) with the EU, you may benefit from lower or zero import duty rates.
The preferential trade arrangements between the importing and exporting countries are agreements that grant preferential treatment to certain goods based on their origin. For example, the EU has FTAs with many countries and regions around the world, such as Canada, Japan, South Korea, Singapore, Vietnam, etc. The EU also has unilateral preferential schemes for developing countries, such as:
- The Generalized Scheme of Preferences (GSP), which offers reduced or zero import duty rates for certain products from low-income and lower-middle-income countries
- The GSP+, which offers additional tariff preferences for certain products from vulnerable countries that implement international conventions on human rights, labor rights, environmental protection, and good governance
- The Everything But Arms (EBA), which offers duty-free and quota-free access for all products except arms and ammunition from least-developed countries
How Does Import Duty Affect Your Business?
Import duty can have a significant impact on your business when trading with the EU. Depending on the rate and amount of import duty that you have to pay, it can affect your:
- Cost: Import duty can increase your cost of importing goods from outside the EU. This can reduce your profit margin or force you to raise your prices to cover your expenses.
- Competitiveness: Import duty can affect your competitiveness in the EU market compared to other suppliers who may have lower or zero import duty rates due to their origin or trade agreements. This can reduce your market share or force you to lower your prices to remain competitive.
- Compliance: Import duty can require you to comply with various rules and procedures when importing goods into the EU. This can involve declaring your goods to customs authorities, providing proof of origin documents, paying import duty and other taxes, obtaining licenses or permits, etc. This can increase your administrative burden and risk of delays or penalties.
How to Reduce or Avoid Import Duty When Trading with the EU?
There are some ways that you can reduce or avoid import duty when trading with the EU, such as:
Choosing the right tariff classification for your goods:
You should ensure that your goods are classified correctly according to the HS and the EU Combined Nomenclature (CN), which is the EU’s version of the HS with eight-digit codes. You should also check if your goods are subject to any additional codes or measures, such as anti-dumping duties, countervailing duties, safeguard measures, etc. You can use the EU’s online database, TARIC, to find the applicable tariff and non-tariff measures for your goods.
Choosing the right customs value for your goods:
You should ensure that your goods are valued correctly according to the methods and rules of the WTO Agreement on Customs Valuation and the EU Customs Code. You should also keep records and invoices of your transactions and any adjustments that may affect the customs value of your goods. You can use the EU’s online database, CVIS, to find information and guidance on customs valuation issues.
Choosing the right origin for your goods:
You should ensure that your goods meet the origin criteria and rules of origin of the preferential trade arrangements that you want to benefit from. You should also obtain and provide proof of origin documents, such as certificates of origin, declarations of origin, invoices, etc. You can use the EU’s online database, REX, to find information and guidance on rules of origin issues.
Choosing the right customs procedure for your goods:
You should choose the most suitable customs procedure for your goods depending on your needs and objectives. For example, you can use:
- The customs warehousing procedure, which allows you to store your goods in a customs warehouse without paying import duty until you release them for free circulation or re-export them
- The inward processing procedure, which allows you to import your goods without paying import duty if you intend to process them and re-export them
- The outward processing procedure, which allows you to export your goods without paying export duty if you intend to process them abroad and re-import them
- The temporary admission procedure, which allows you to import your goods without paying import duty if you intend to use them temporarily and re-export them
- The end-use procedure, which allows you to import your goods at a reduced or zero import duty rate if you intend to use them for a specific purpose or in a specific sector.
You can use the EU’s online database, EBTI, to find information and guidance on customs procedures issues.
How import duties affect the EU’s trade in goods
Import duties are taxes that are levied on goods that cross international borders. They are usually calculated as a percentage of the value or the weight of the imported goods. Import duties can have various effects on the trade in goods between countries or regions, such as the European Union (EU) and its trading partners.
The EU’s import duty regime
The EU has a common customs tariff that applies to all imports from non-EU countries or territories. The tariff rates vary depending on the product and the origin of the import. The EU also grants preferential tariff rates or exemptions to some imports from certain countries or regions, based on trade agreements or development policies. According to Eurostat, about 71% of the EU’s imports enter the EU at zero tariff, meaning that they are not subject to any import duty .
The EU’s import duty regime is integrated in a multilingual database called TARIC, which contains all the measures relating to EU customs tariff, commercial and agricultural legislation. TARIC is updated daily and provides information on the applicable tariff rates, tariff preferences, trade defence instruments, prohibitions and restrictions, and other measures that affect the import and export of goods .
The impact of import duties on the EU’s trade in goods
Import duties can affect the trade in goods between the EU and its trading partners in various ways. On the one hand, import duties can increase the price of imported goods, making them less competitive and reducing the demand for them. This can protect domestic producers from foreign competition and encourage domestic production and consumption. On the other hand, import duties can also reduce the supply of imported goods, making them scarcer and more expensive. This can harm domestic consumers who have to pay higher prices or switch to lower-quality or less-preferred alternatives. Import duties can also affect the export performance of domestic producers who rely on imported inputs or intermediate goods for their production processes.
The impact of import duties on the trade in goods depends on several factors, such as the elasticity of demand and supply, the availability of substitutes, the degree of competition, and the level of integration between trading partners. The impact can also vary across different sectors and products, depending on their specific characteristics and market conditions.
One way to measure the impact of import duties on the trade in goods is to compare the value and volume of trade before and after a change in the tariff rates. For example, Eurostat provides statistics on international trade in goods by tariff regime, which show how different tariff rates affect the value and volume of imports and exports for different product categories . These statistics can help to assess how changes in import duties affect the global demand for certain products or sectors.
References:
https://core.ac.uk/download/pdf/6958854.pdf
International trade in goods – tariffs – Statistics Explained
EU Customs Tariff (TARIC) – Taxation and Customs Union
Data – International trade in goods – Eurostat
https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/what-is-common-customs-tariff_en
https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin_en
https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/valuation_en
https://ec.europa.eu/trade/policy/countries-and-regions/agreements/
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