Industry News

Take Control of Your Duty Liability

Rob Gardenier | M.E. Dey & Co.

The China Tariffs are here to stay for a while, and will potentially expand to include more consumer goods soon. India and Turkey have lost their membership in the oldest Duty FREE preference program ‘GSP’. Tariffs on Steel and Aluminum are being assessed on imports from most trading partners; however, Turkey saw tariffs on its exports of certain steel products reduced from 50% to 25% and Mexico and Canada are now excluded from the additional duties on imports of Aluminum and Steel. Additional duties on Autos and auto parts on imports from the EU have been postponed until later this year. There are; however, a number of options an Importer can explore to mitigate some of the impacts of these additional duties.


Review your product classifications. Work with your Customs Broker to determine if your product has the right tariff classification. Perhaps your product has changed over the years and these changes may affect the tariff classification and duty rate. A discussion with your Broker about possible changes in the make-up of your imported product may result in a reclassification and possible duty savings.


All imported goods must have a correct indication of its country of origin, which is the country in which the imported product reached its final form before entering into the US. “A new and different article of commerce”, or Substantial Transformation, is a foundation to determine a product’s true country of origin. Consider moving parts and materials from countries subject to extra duty and process or manufacture your finished product into a “new and different article of commerce” in a final, origin conferring country, not subject to additional tariffs.


Consider sourcing your goods from a different country OR, consider sourcing your goods in the United States. Sourcing within the United States might make your supply chain a bit more predictable.


The First Sale Value Rule allows for an importer to reduce duty liability by declaring the value of its merchandise based on the “first sale” in a multi-tier transaction. The First Sale programs allows an Importer the ability to declare the sale price from the factory to the middleman; avoiding duty assessment on the middleman’s mark up. To qualify, a review of the transaction must be done to ensure that the transaction is a bona fide sale, is at “arm’s length” or is “multi-tiered” and is destined for export to the U.S.


Almost all imported goods calculate their dutiable value by using ‘Transaction Value’, which is the ‘price actually paid or payable’ for the merchandise when sold for exportation to the United States, plus, if they are not already included, amounts equal to: packing, any selling commission, assists, royalties or license fees. But, certain costs can be deducted from the Transaction value including international transportation costs, discounts, insurance, customs duties, excise taxes, and costs incurred AFTER importation. If these costs are included in the transaction value, they should be clearly broken out, and duties will be assessed on the lower Transaction Value; lowering the final assessed duty.


Free Trade Agreements (FTA) and Trade Preference Programs provide reduced or duty free treatment for qualifying imports. Additionally, some FTAs eliminate the assessment of the Customs Merchandise Processing Fee (MPF) for qualifying imports. Qualification requires a careful review of the production process and requires the Importer to maintain documentation to substantiate an FTA claim.


If an imported good is subsequently exported, the Duty Drawback program provides for a refund of 99% of the duties paid on the original import. Detailed inventory records are required to be able to link the import shipment to the export shipment. Drawback claims can be submitted by the importer or the exporter. Filing Drawback requires a Broker who specializes in the Drawback process.

Each of these options requires careful review of your supply chain, products and business operations. These options will not apply to every business and require the application of specific Customs regulations; however, they have the ability to reduce duty liability and increase competitiveness. To ensure compliance, and to demonstrate Reasonable Care, importers should work with a Broker or trade consultant to determine applicability to your business and product.