Anyone with even a passing interest in global trade knows that today’s global marketplace requires managing shipments from origin to destination not only in a timely manner, but also in accordance with regulatory requirements, administrative apparatus, and the laws of all countries. countries involved in the supply chain of each shipment. , a best practice generally known as “compliance”. Compliance is and always will be a key component of any well-managed supply chain; After all, break regulations and see your organization pay hefty fines, you risk potential costly delays, legal exposure, reputational damage, and even loss of business privileges.
However, compliance is not the only value benchmark for global organizations today.
Competitive corporations are now broadening their focus to become more proactive and profitable in their business management strategy, taking advantage of special programs that allow them to find significant savings.
4 Ways to Save on Global Customs and Duties for Import Shipments
There are many ways to leverage your global supply chain to maximize your profits and establish an advantage over your competitors. Let’s focus on four, two of which are of general application and two of which are specific to the US market. These are Free Trade Agreements (FTA), Foreign Trade Zones (FTZ), Global Ranking, and Drawback.
- Free trade agreements They are agreements between 2 or more countries that are designed to reduce trade barriers and encourage trade between partner countries. Since tax break programs exist all over the world, this is perhaps the most recognized of these cost saving methods. According to the World Trade Organization (WTO), as of 2022, there were 355 such FTAs around the world, with almost 600 participating countries, and with 14 in the US alone, with merchandise exports to its 20 TLC partners with agreements in place totaling $710 billion.. Nor is it a downward trend. The increase in total settlements and notifications has been pronounced. One of the most recent FTAs, the Regional Comprehensive Economic Partnership (RCEP), which covers the Asia Pacific region and entered into force in 2020, is the largest ever signed, covering an estimated total trade of $2.4 trillion. .
How can you save with Free Trade Agreements?
By taking advantage of these programs, an organization can reduce, defer, or eliminate the payment of duties on qualifying goods based on the specific rules of each agreement, rules that often allow transformation (through blending, manufacturing, or assembly) of materials. components from other countries into a finished product. well regarded as native to the country.
2. Foreign Trade Zones are specially designated sites near US ports of entry that allow importers and exporters of all sizes to move goods in and out of the country with little or no customs duties, taxes or fees. They are specialized areas requested by corporations and other organizations and approved by the United States Customs and Border Protection (CBP), which create areas that are not considered to exist within the customs territory of the United States.
The FTZ program is based in the US, but other countries have similar programs, such as the EU Customs Regime.
How can you save with Foreign Trade Zones?
These free zones allow companies to obtain many savings and benefits, such as the exemption of tariffs and the elimination of tariffs on scrap metal, or goods imported but later re-exported, or other classes of merchandise, as well as the tariff saving benefits of transforming Components in finished products to perform the most favorable duty.
Furthermore, an FTZ gives a savvy organization the ability to control its expenses. Suppose you are an electronics company that imports finished goods into zones and warehouses for an average inventory of 45 days. While in the zone, no duty is charged until the imported goods are withdrawn for the US market, deferring the duty for 45 days and restricting the duty paid to only the value of what was withdrawn.
- World Ranking: Classification is the act of assigning a Harmonized System (HS) number to an imported or exported product for the purposes of applying tariffs. Some countries use this for business statistical information. No matter the country, every object that crosses a border must be declared using a global code known as the HS (or Harmonized System) code. The HS code structure also includes the duty rates associated with the code and is used to determine the duty to pay.
How can you save with Global Ranking?
A forward-thinking corporation can evaluate its products at point of creation to find favorable tariff rates and participate in rate engineering to create products that would allow more favorable rates. With the right analytics, a few percentage points can add up to millions.
- tax refund This US-based program allows an importer of record to recover up to 99% of the duties paid on imported goods that are later exported from the US or destroyed.
How can you save with Duty Drawback?
Maybe it’s esoteric, but an interesting point is that the tax refund has been part of US law since the first US tariff law in 1789. So it’s a well-established way to save.
This special class of assets can be essentially tax free as long as this program is used properly.
With so many reasons to participate in blackout programs, the question arises: why doesn’t everyone participate? Simply put, it requires a lot of documents if you don’t have a solution.
To give just one example of the programs listed above, analyzing the HS or the various qualification rules for best savings requires mapping product flows through trade lanes, identifying the FTAs that are available to each trade lane for each commodity. Not to mention the HS code and country of origin and transformation rules, and that’s without even going into the thousands of changes that can occur to dozens or even hundreds of different countries’ tariffs, codes, and rules. Hiring this work done in-house or outsourcing all of this work to outside consultants can lead to massive expense, which reduces ROI. Due to time, information availability and labor constraints, companies often choose not to claim preferential status and lose the savings, or even decide the savings are not worth the expense.
It may be helpful or necessary to understand what your ROI is likely to be, before taking on the operational and administrative burden of such opportunities. Being able to compare trade routes against each other to see the burden of duties, taxes and fees, or the total cost of landing can help you forecast and plan your next move. Being able to model different multilateral FTAs can help you determine which special savings programs will give you the highest return and for which products. And being able to report on your data can allow you to use what-if scenarios to forecast future costs and impacts on your business.
Competitive corporations use analytical software tools powered by rich global content that allow them to evaluate savings opportunities, such as FTA eligibility assessment or tax savings opportunities.
With the right determination and the right tools, it’s not only possible to take advantage of existing tax savings, but it’s also necessary to stay competitive in a changing global marketplace.
For additional information, see the following global business management resources:
