How to Save Money on Export and Import Duties: A Complete Guide

Export and import duties are taxes that governments impose on goods that cross their borders. They are a source of revenue for the government, but also a cost for businesses and consumers who trade internationally. In this article, we will explain what export and import duties are, how they are calculated, and how you can reduce them legally and ethically.

What are Export and Import Duties?

Export and import duties are also known as tariffs, customs duties, or border taxes. They are levied by the customs authorities of the country where the goods enter or leave. They are usually based on the value, quantity, or weight of the goods, or on a combination of these factors. The purpose of export and import duties is to protect domestic industries from foreign competition, to raise revenue for the government, and to enforce trade policies and agreements.

Export and import duties vary depending on the type of goods, the country of origin, the country of destination, and the trade agreements between them. For example, some goods may be exempt from duties, while others may face high tariffs. Some countries may have preferential trade agreements that lower or eliminate duties for certain goods or partners. Some countries may also impose additional fees or charges on top of the duties, such as value-added tax (VAT), excise tax, or inspection fees.

How to Calculate Export and Import Duties?

To calculate the export and import duties for your goods, you need to know the following information:

The Harmonized System (HS) code of your goods

This is a standardized classification system that assigns a six-digit code to every product category. You can find the HS code of your goods by using online tools such as the World Customs Organization’s HS Database or the International Trade Centre’s Market Access Map.

The customs value of your goods

This is the price that you pay or receive for your goods, plus any costs related to transportation, insurance, loading, unloading, handling, or commissions. You can find the customs value of your goods by using online tools such as the World Trade Organization’s Customs Valuation Database or the World Bank’s Doing Business indicators.

The duty rate of your goods

This is the percentage or amount that you have to pay as duty for your goods. You can find the duty rate of your goods by using online tools such as the World Trade Organization’s Tariff Analysis Online or the International Trade Centre’s Market Access Map.

To calculate the export and import duties for your goods, you simply multiply the customs value by the duty rate. For example, if you export a product with a customs value of $1000 and a duty rate of 10%, you have to pay $100 as export duty. If you import a product with a customs value of $2000 and a duty rate of 5%, you have to pay $100 as import duty.

How to Reduce Export and Import Duties?

There are several ways that you can reduce your export and import duties legally and ethically. Here are some tips:

Choose your products wisely

Some products have lower or zero duty rates than others, depending on their HS code, origin, destination, and trade agreements. You can use online tools such as those mentioned above to compare different products and markets and find the best options for your business.

Choose your partners carefully

Some countries have lower or zero duty rates than others, depending on their trade agreements with your country. You can use online tools such as those mentioned above to compare different countries and regions and find the best partners for your business.

Negotiate with your suppliers and customers

You can try to lower your customs value by negotiating better prices, discounts, or terms with your suppliers and customers. You can also try to share or split the duty costs with them, depending on who is responsible for paying them according to the Incoterms rules.

Apply for duty relief schemes

Some countries offer duty relief schemes for certain types of businesses, products, or purposes. For example, you may be eligible for duty-free or reduced-duty access if you are an exporter or importer of raw materials, intermediate goods, finished goods, samples, temporary imports, re-exports, repairs, replacements, donations, humanitarian aid, etc. You can check with your local customs authorities or trade associations for more information on how to apply for these schemes.

Seek professional advice

If you are not sure how to calculate or reduce your export and import duties, you can consult a professional such as a customs broker, a freight forwarder, a trade lawyer, or a tax accountant. They can help you with the documentation, procedures, compliance, and optimization of your international trade activities.

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The Impact of Export and Import Duties on Global Trade

Export and import duties are taxes levied by governments on goods that cross international borders. They are also known as tariffs, customs duties, or trade barriers. Export and import duties can have significant effects on the global trade of goods and services, as well as on the economic welfare of countries and regions.

How Export and Import Duties Affect Trade Flows

Export and import duties affect the prices of goods in both the exporting and importing countries. By raising the price of imported goods, import duties make them less competitive in the domestic market, reducing the demand for imports. By lowering the price of exported goods, export duties make them more competitive in the foreign market, increasing the demand for exports. However, export duties also reduce the domestic supply of goods, as some producers divert their output to foreign markets.

The net effect of export and import duties on trade flows depends on the elasticity of demand and supply for the goods involved, as well as on the relative size of the countries and their trading partners. Generally, export and import duties reduce the volume of trade between countries, creating a trade distortion. This means that some goods are traded less than they would be in a free market, while others are traded more than they would be in a free market.

How Export and Import Duties Affect Economic Welfare

Export and import duties affect the economic welfare of countries and regions by creating costs and benefits for different groups of agents. The main costs and benefits are:

Government revenue

Export and import duties generate revenue for the government that imposes them. This revenue can be used to finance public goods and services, or to reduce other taxes. However, export and import duties also reduce the revenue of other governments that trade with the country that imposes them.

Consumer surplus

Export and import duties reduce the consumer surplus of both the importing and exporting countries. Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay for it. By raising the price of imported goods, import duties reduce the consumer surplus of domestic consumers who buy those goods. By lowering the price of exported goods, export duties reduce the consumer surplus of foreign consumers who buy those goods.

Producer surplus

Export and import duties increase the producer surplus of both the importing and exporting countries. Producer surplus is the difference between what producers receive for a good and what it costs them to produce it. By raising the price of imported goods, import duties increase the producer surplus of domestic producers who compete with those goods. By lowering the price of exported goods, export duties increase the producer surplus of domestic producers who sell those goods.

Trade diversion

Export and import duties create trade diversion, which is a loss of economic welfare due to a shift in trade from a more efficient to a less efficient source. Trade diversion occurs when a country imposes a duty on imports from one source, but not from another source that has a higher production cost. This induces consumers to buy from the higher-cost source, instead of from the lower-cost source.

Trade creation

Export and import duties can also create trade creation, which is a gain in economic welfare due to a shift in trade from a less efficient to a more efficient source. Trade creation occurs when a country reduces or eliminates a duty on imports from one source, but not from another source that has a higher production cost. This induces consumers to buy from the lower-cost source, instead of from the higher-cost source.

The net effect of export and import duties on economic welfare depends on the magnitude and direction of these costs and benefits, as well as on how they are distributed among different groups of agents. Generally, export and import duties reduce the global economic welfare by creating more trade distortion than trade creation.

The Trends of Export and Import Duties in Global Trade

According to data from World Bank’s World Integrated Trade Solution (WITS), export and import duties have been declining in global trade over time. The average applied tariff rate for all products in world trade was 3.91% in 2020, down from 6.77% in 2000. The average applied tariff rate for agricultural products was 9.66% in 2020, down from 16.61% in 2000. The average applied tariff rate for non-agricultural products was 3.02% in 2020, down from 5.53% in 2000.

The decline in export and import duties reflects several factors, such as:

The proliferation of regional trade agreements (RTAs) that reduce or eliminate tariffs among member countries.
The multilateral trade negotiations under the World Trade Organization (WTO) that commit countries to lower their tariffs on a most-favored-nation (MFN) basis.
The unilateral trade liberalization by some countries that reduce their tariffs on a non-reciprocal basis.
The growth of global value chains (GVCs) that increase the interdependence of countries and reduce the incentives to impose tariffs on intermediate inputs.

However, export and import duties are not the only form of trade barriers that affect global trade. Other forms of trade barriers, such as non-tariff measures (NTMs), subsidies, quotas, and safeguards, can also distort trade flows and affect economic welfare. Moreover, some countries have resorted to increasing their export and import duties in recent years, as a response to trade disputes, protectionist pressures, or national security concerns. For example, the United States has imposed additional tariffs on imports of steel, aluminum, and certain products from China under Section 232 and Section 301 of the Trade Act of 1974. These tariffs have triggered retaliatory measures from other countries, leading to a trade war that has disrupted global trade and harmed economic growth.

The Future of Export and Import Duties in Global Trade

The future of export and import duties in global trade is uncertain, as it depends on the evolution of several factors, such as:

The outcome of the ongoing trade negotiations and disputes among major trading partners, such as the United States, China, the European Union, and the United Kingdom.
The impact of the COVID-19 pandemic and its aftermath on the global trade system and the recovery of trade flows.
The role of digital technologies and e-commerce in facilitating cross-border trade and reducing trade costs.
The emergence of new issues and challenges in global trade, such as climate change, environmental protection, labor standards, human rights, and data privacy.

These factors will shape the demand and supply of export and import duties in global trade, as well as the balance between trade liberalization and protectionism. Export and import duties will continue to be an important instrument of trade policy for many countries, but they will also face increasing pressure from other forms of trade barriers, as well as from new forms of trade cooperation.

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

https://wits.worldbank.org/countryprofile/en/wld
https://www.cbp.gov/newsroom/stats/trade

http://www.wcoomd.org/en.aspx

https://www.intracen.org/

https://www.wto.org/

https://www.worldbank.org/

https://iccwbo.org/resources-for-business/incoterms-rules/