How to Save Money on Customs and Tariffs When Importing Goods

If you are a business owner who imports goods from other countries, you may be wondering how to reduce the costs of customs and tariffs. Customs and tariffs are fees that governments charge on imported goods to protect their domestic industries and generate revenue. They can vary depending on the type and origin of the goods, as well as the trade agreements between the countries involved.

In this article, we will explain what customs and tariffs are, how they are calculated, and how you can save money on them when importing goods. We will also provide some tips and resources to help you navigate the complex world of international trade.

What are Customs and Tariffs?

Customs and tariffs are two types of taxes that governments impose on imported goods. Customs are fees that cover the administrative costs of processing, inspecting, and clearing the goods at the border. Tariffs are duties that are based on the value or quantity of the goods, or a combination of both. Tariffs are usually higher for goods that compete with domestic products or that are considered luxury items.

The amount of customs and tariffs that you have to pay depends on several factors, such as:

The classification of the goods according to the Harmonized System (HS), which is a standardized system of codes that identifies products by their type, material, function, and origin.
The origin of the goods, which determines the preferential tariff rates that may apply under various trade agreements, such as the North American Free Trade Agreement (NAFTA), the European Union (EU), or the World Trade Organization (WTO).
The value of the goods, which is usually based on the transaction value, or the price paid or payable for the goods, plus any additional costs such as freight, insurance, commissions, royalties, etc.
The quantity of the goods, which may affect the tariff rate if it exceeds a certain threshold or quota.

How to Save Money on Customs and Tariffs When Importing Goods

There are several ways that you can save money on customs and tariffs when importing goods, such as:

1. Choosing the right HS code for your goods

The HS code determines the tariff rate and any exemptions or reductions that may apply. You should consult with a customs broker or an expert in international trade to ensure that you use the correct HS code for your goods. You can also use online tools such as the World Customs Organization’s HS Database or the U.S. International Trade Commission’s Interactive Tariff and Trade DataWeb to find out the HS codes and tariff rates for your products.

2. Taking advantage of trade agreements

Trade agreements are treaties that establish preferential trade terms between two or more countries. They can lower or eliminate tariffs on certain goods, as well as provide other benefits such as simplified customs procedures, dispute resolution mechanisms, intellectual property protection, etc. You should check if your country has a trade agreement with the country from which you are importing goods, and if so, what are the requirements and conditions to qualify for preferential tariff rates. You may need to obtain a certificate of origin or other documents to prove that your goods meet the rules of origin of the trade agreement.

3. Applying for duty relief or drawback programs

Duty relief or drawback programs are schemes that allow you to claim a refund or exemption of customs and tariffs on imported goods that are re-exported, used in manufacturing or processing other products for export, destroyed, donated, or otherwise disposed of. You should check with your local customs authority if there are any duty relief or drawback programs available for your goods, and what are the eligibility criteria and application procedures.

4. Negotiating with your suppliers or buyers

You may be able to reduce your customs and tariffs costs by negotiating with your suppliers or buyers on who will pay for them. This is usually determined by the Incoterms (International Commercial Terms), which are standardized terms that define the responsibilities and risks of each party in an international trade transaction. For example, if you use the Incoterm DDP (Delivered Duty Paid), it means that you (the seller) will pay for all the costs and risks involved in delivering the goods to the buyer’s destination, including customs and tariffs. On the other hand, if you use the Incoterm EXW (Ex Works), it means that you (the seller) will only be responsible for making the goods available at your premises, and the buyer will pay for all the costs and risks involved in transporting them to their destination, including customs and tariffs. You should choose the Incoterm that best suits your needs and budget, and communicate it clearly with your trading partner.

Resources to Help You Save Money on Customs and Tariffs When Importing Goods

If you need more help or information on how to save money on customs and tariffs when importing goods, you can consult with these resources:

A customs broker or an international trade consultant who can advise you on how to classify your goods, take advantage of trade agreements, apply for duty relief or drawback programs, and negotiate with your suppliers or buyers.
A freight forwarder or a logistics company who can handle the transportation, documentation, and clearance of your goods, and help you optimize your shipping costs and delivery time.
A trade association or a chamber of commerce who can provide you with industry-specific guidance, networking opportunities, and advocacy support on international trade issues.
A government agency or a non-governmental organization who can offer you training, counseling, financing, and other assistance on international trade matters.

The Impact of Tariffs on Global Demand for Customs and Tariffs Services

Customs and tariffs are two important aspects of international trade that affect the demand and supply of goods and services across borders. Customs refers to the rules and regulations that govern the import and export of goods, while tariffs are the taxes or duties levied on imported or exported goods. Customs and tariffs services are the activities that facilitate the compliance with customs and tariffs rules, such as customs clearance, valuation, classification, documentation, inspection, and dispute resolution.

In this blog post, we will examine how tariffs affect the global demand for customs and tariffs services, using data and insights from various sources. We will focus on three main aspects: the direct effect of tariffs on trade volumes, the indirect effect of tariffs on supply chains, and the potential effect of tariff reforms on trade facilitation.

The Direct Effect of Tariffs on Trade Volumes

One of the most obvious effects of tariffs is that they increase the price of imported goods, which reduces the demand for them. This in turn reduces the demand for customs and tariffs services that are needed to process those imports. According to a study by Morgan Stanley Research , a 10% increase in import tariffs would reduce global trade volumes by 2.4%, assuming full pass-through to import prices. This would imply a similar reduction in the demand for customs and tariffs services related to imports.

However, tariffs can also have a positive effect on the demand for customs and tariffs services related to exports. This is because tariffs can create opportunities for exporters to access new markets or increase their market share in existing markets, as they become more competitive relative to their foreign rivals. For example, a study by the International Monetary Fund found that U.S. exports to China increased by 18% in 2019, despite the trade war between the two countries, as Chinese importers switched from other sources to U.S. suppliers. This increased the demand for customs and tariffs services that are needed to facilitate those exports.

Therefore, the net effect of tariffs on the global demand for customs and tariffs services depends on the balance between these two opposing forces: the negative effect of lower imports and the positive effect of higher exports. The overall impact may vary by country and sector, depending on their trade patterns and tariff structures.

The Indirect Effect of Tariffs on Supply Chains

Another effect of tariffs is that they disrupt the global supply chains that link producers and consumers across countries. Supply chains are networks of firms that provide inputs, intermediate goods, and final goods for production and consumption. Tariffs can affect supply chains in two ways: by increasing the cost of inputs and intermediate goods, and by inducing firms to relocate or restructure their production processes.

The first effect is similar to the direct effect of tariffs on trade volumes: higher input costs reduce the demand for imported inputs and intermediate goods, which reduces the demand for customs and tariffs services related to those imports. However, this effect can also spill over to other countries that are not directly involved in the trade dispute, as they may supply inputs or intermediate goods to the affected countries. For example, a study by Morgan Stanley Research estimated that 80% of the impact of U.S.-China trade tensions on global growth would come from supply chain disruptions in other countries.

The second effect is more complex and uncertain: firms may respond to higher tariffs by relocating or reorganizing their production processes to avoid or minimize them. This can have both positive and negative effects on the demand for customs and tariffs services, depending on how firms adjust their sourcing and distribution strategies. For example, firms may shift their production from one country to another, which would increase the demand for customs and tariffs services in the new location but decrease it in the old one. Alternatively, firms may consolidate their production in one country or region, which would reduce the demand for customs and tariffs services across borders but increase it within borders.

Therefore, the net effect of tariffs on supply chains is ambiguous and depends on how firms adapt to changing trade conditions. The overall impact may vary by country and sector, depending on their participation and position in global value chains.

The Potential Effect of Tariff Reforms on Trade Facilitation

A final aspect to consider is how tariff reforms could affect the global demand for customs and tariffs services in the future. Tariff reforms refer to changes in tariff policies that aim to reduce or eliminate trade barriers and promote trade liberalization. Tariff reforms can have both direct and indirect effects on trade volumes and supply chains, as discussed above, but they can also have an additional effect on trade facilitation.

Trade facilitation refers to the simplification, harmonization, standardization, and modernization of trade procedures and processes that affect the movement of goods across borders. Trade facilitation can reduce trade costs, increase trade efficiency, improve trade compliance, enhance trade security, and foster trade development. Customs and tariffs services are an integral part of trade facilitation, as they help traders comply with customs and tariffs rules and regulations.

Tariff reforms can affect trade facilitation in two ways: by creating incentives for trade facilitation measures and by creating opportunities for trade facilitation cooperation. The first effect is based on the idea that lower tariffs reduce the incentives for smuggling, evasion, and corruption, which in turn reduce the need for complex and costly customs and tariffs procedures and controls. This can create space for trade facilitation measures that simplify and streamline customs and tariffs processes, such as pre-arrival processing, risk management, single window, electronic data interchange, and authorized economic operator programs. These measures can reduce the demand for customs and tariffs services that are related to inspection, verification, and clearance, but increase the demand for customs and tariffs services that are related to information, documentation, and certification.

The second effect is based on the idea that lower tariffs increase the benefits of trade cooperation, which in turn increase the scope for trade facilitation cooperation. This can create opportunities for trade facilitation agreements that harmonize and standardize customs and tariffs procedures and rules, such as the World Trade Organization’s Trade Facilitation Agreement, regional trade agreements, and bilateral mutual recognition agreements. These agreements can reduce the demand for customs and tariffs services that are related to duplication, divergence, and discrimination, but increase the demand for customs and tariffs services that are related to coordination, collaboration, and integration.

Therefore, the net effect of tariff reforms on trade facilitation is positive and depends on how countries implement tariff reforms and adopt trade facilitation measures and agreements. The overall impact may vary by country and sector, depending on their level of development and degree of openness.

Customs and tariffs services are essential for international trade, but their demand is affected by various factors, including tariffs. Tariffs can have both positive and negative effects on the global demand for customs and tariffs services, depending on how they affect trade volumes, supply chains, and trade facilitation. The net effect may vary by country and sector, depending on their trade patterns, tariff structures, participation in global value chains, level of development, and degree of openness.

To understand the impact of tariffs on the global demand for customs and tariffs services, it is important to consider not only the direct effect of tariffs on import prices, but also the indirect effect of tariffs on supply chains and the potential effect of tariff reforms on trade facilitation. These effects are complex and uncertain, as they depend on how firms and countries respond to changing trade conditions. Therefore, it is essential to monitor the developments in tariff policies and their implications for trade flows and processes.

References:

http://www.cbp.gov/linkhandler/cgov/newsroom/publications/trade/iius.ctt/iius.pdf

https://www.wto.org/english/res_e/booksp_e/tariff_profiles19_e.pdf

https://www.cbp.gov/sites/default/files/documents/Importing%20into%20the%20U.S.pdf

http://fita.org/countries/us.html?ma_rubrique=selling_and_buying

https://www.morganstanley.com/ideas/trade-tariffs-supply-chain
https://www.imf.org/en/Publications/WP/Issues/2022/11/04/Trade-Policy-Implications-of-a-Changing-World-Tariffs-and-Import-Market-Power-525076

http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonized-system.aspx
https://www.cbp.gov/trade/basic-import-export
https://www.trade.gov/trade-agreements
https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/