How to Save Money on Customs Duties Rates: A Comprehensive Guide
Customs duties rates are the taxes that you have to pay when you import or export goods across borders. They vary depending on the type, value, origin and destination of the goods, as well as the trade agreements between countries. Customs duties rates can have a significant impact on your business costs and profits, so it is important to understand how they work and how to minimize them.
In this article, we will explain what customs duties rates are, how they are calculated, and what factors affect them. We will also share some tips and strategies on how to reduce your customs duties rates and save money on your international trade transactions.
What are customs duties rates?
Customs duties rates are the taxes that you have to pay when you import or export goods across borders. They are also known as tariffs, import duties, or customs fees. Customs duties rates are usually expressed as a percentage of the value of the goods, but they can also be fixed amounts per unit or weight.
Customs duties rates are imposed by governments to protect their domestic industries from foreign competition, to raise revenue, or to achieve other policy objectives. For example, some countries may impose higher customs duties rates on certain products that are considered harmful to the environment, health, or security.
How are customs duties rates calculated?
The calculation of customs duties rates depends on several factors, such as:
The type of goods
Different types of goods have different customs duties rates, depending on their classification under the Harmonized System (HS), which is a standardized system of codes used by most countries to identify and categorize products for trade purposes. For example, the HS code for coffee beans is 0901.11, while the HS code for roasted coffee is 0901.21. Each HS code has a corresponding customs duty rate that applies to it.
The value of the goods
The value of the goods is usually based on the transaction value, which is the price paid or payable for the goods when sold for export or import. However, if the transaction value is not available or acceptable, other methods of valuation may be used, such as the deductive value (based on the resale price in the importing country), the computed value (based on the cost of production in the exporting country), or the fallback value (based on other reasonable means).
The origin of the goods
The origin of the goods refers to the country where the goods were wholly obtained or produced, or where they underwent their last substantial transformation. The origin of the goods determines whether they are eligible for preferential treatment under any trade agreements that exist between the exporting and importing countries. For example, if you import goods from a country that has a free trade agreement (FTA) with your country, you may benefit from lower or zero customs duties rates, as long as you can prove that the goods meet the rules of origin of the FTA.
The destination of the goods
The destination of the goods refers to the country where the goods are imported or exported. The destination of the goods determines which customs authority is responsible for collecting and enforcing the customs duties rates. For example, if you export goods from Canada to Mexico, you have to comply with the customs regulations and procedures of both Canada and Mexico.
What factors affect customs duties rates?
Besides the factors mentioned above, there are other factors that can affect your customs duties rates, such as:
The exchange rate
The exchange rate is the rate at which one currency can be exchanged for another. The exchange rate affects your customs duties rates because it affects the value of your goods in the currency of the importing or exporting country. For example, if you import goods from China to Canada, and the Canadian dollar appreciates against the Chinese yuan, your customs duties rates will decrease because your goods will be worth less in Canadian dollars.
The duty relief programs
Duty relief programs are programs that allow you to import or export certain goods without paying or paying reduced customs duties rates. Duty relief programs may be granted for various reasons, such as temporary admission of goods for exhibitions or repairs, inward or outward processing of goods for further manufacturing or processing, drawback or refund of customs duties paid on imported goods that are re-exported or used as inputs for exported goods, etc.
The duty suspension schemes
Duty suspension schemes are schemes that allow you to import certain goods without paying customs duties rates for a specified period of time. Duty suspension schemes may be granted for various reasons, such as encouraging innovation and research and development, promoting regional development and employment, supporting strategic sectors or industries, etc.
How to reduce your customs duties rates and save money?
There are several ways that you can reduce your customs duties rates and save money on your international trade transactions, such as:
Choose your suppliers wisely
You can save money by sourcing your goods from suppliers that are located in countries that have favorable trade agreements with your country, or that offer lower customs duties rates for their products. You can also negotiate with your suppliers to share the burden of customs duties rates, or to provide you with certificates of origin or other documents that can prove the eligibility of your goods for preferential treatment.
Classify your goods correctly
You can save money by classifying your goods correctly under the HS system, and by using the most specific and accurate HS code that applies to your goods. This can help you avoid paying higher customs duties rates than necessary, or paying penalties or fines for misclassification. You can also consult with a customs broker or a trade consultant to help you with the classification of your goods.
Value your goods properly
You can save money by valuing your goods properly according to the rules and methods of valuation of the importing or exporting country. This can help you avoid paying higher customs duties rates than necessary, or paying penalties or fines for undervaluation or overvaluation. You can also consult with a customs broker or a trade consultant to help you with the valuation of your goods.
Apply for duty relief or suspension
You can save money by applying for duty relief or suspension programs that are available for your goods, and by complying with the requirements and conditions of these programs. This can help you import or export certain goods without paying or paying reduced customs duties rates. You can also consult with a customs broker or a trade consultant to help you with the application and administration of these programs.
Customs duties rates are an important factor to consider when you import or export goods across borders. They can have a significant impact on your business costs and profits, so it is important to understand how they work and how to minimize them. By following the tips and strategies that we have shared in this article, you can reduce your customs duties rates and save money on your international trade transactions.
How Customs Duties Rates Affect Global Demand in the Industry
Customs duties are taxes levied on imported goods, capital and services. They are a form of protectionism that can affect the global demand for products and services in various industries. In this blog post, we will look at three statistical aspects of how customs duties rates influence the global demand in the industry: the average weighted import duty, the tariff bindings and the preferential tariffs.
Average Weighted Import Duty
The average weighted import duty is a measure of the overall level of tariffs applied by a country or a region to its imports. It is calculated by weighting the tariff rate of each product by its share in total imports. The higher the average weighted import duty, the more restrictive the trade policy of a country or a region is.
According to the World Bank, the average weighted import duty on all products in 2018 was 1.69% for the European Union, 1.59% for the United States, 2.45% for Japan and 3.39% for China. These are some of the major markets for various industries, and their import duty levels reflect their openness to world trade. However, there are also other factors that affect the global demand, such as the size of the market, the income level, the consumer preferences and the non-tariff barriers.
Tariff Bindings
Tariff bindings are the legal commitments on customs duty rates that WTO members make as part of their trade negotiations. They act as ceilings on the tariffs that member governments can set and are known as “bound rates”. Tariff bindings provide predictability and stability for traders, as they limit the scope for sudden increases in tariffs.
However, tariff bindings do not necessarily reflect the actual tariffs applied by WTO members, which can be lower than the bound rates. These lower tariffs are known as “applied rates” and have a direct impact on trade. The difference between the bound and applied rates is called “tariff water” and represents a potential source of trade policy uncertainty.
According to the WTO, the average bound rate for all products in 2018 was 26.6% for all WTO members, while the average applied rate was 7.8%. This means that there is a significant gap between the legal commitments and the actual practice of WTO members regarding their tariff policies. This gap varies across countries and products, and can affect the global demand in different ways.
Preferential Tariffs
Preferential tariffs are lower tariffs that WTO members grant to certain trading partners or groups of countries as part of their regional or bilateral trade agreements. They are an exception to the WTO principle of non-discrimination, which requires that WTO members treat all their trading partners equally. Preferential tariffs can create trade diversion or trade creation effects, depending on whether they divert trade from more efficient suppliers or create new trade opportunities.
According to the WTO, there were 305 regional trade agreements in force as of January 2020, covering more than half of world trade. These agreements often include preferential tariffs for various products and services, creating different levels of market access for different trading partners. For example, Canada has a free trade agreement with the European Union, which eliminates tariffs on most goods and services between them, while it faces higher tariffs when exporting to other markets.
Customs duties rates are an important factor that can affect the global demand in various industries. They can vary depending on the average weighted import duty, the tariff bindings and the preferential tariffs of different countries and regions. Traders need to be aware of these variations and their implications for their market opportunities and competitiveness.
References:
http://www.cbp.gov/linkhandler/cgov/newsroom/publications/trade/iius.ctt/iius.pdf
http://fita.org/countries/us.html?ma_rubrique=selling_and_buying
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
https://web.archive.org/web/20200414172506/https://www.cbp.gov/sites/default/files/documents/Importing%20into%20the%20U.S.pdf
https://en.wikipedia.org/wiki/List_of_countries_by_tariff_rate
https://www.trade.gov/import-tariffs-fees-overview-and-resources
https://www.trade.gov/import-tariffs-fees-overview-and-resources
https://www.trade.gov/knowledge-product/mexico-tariff-and-tax-information
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