What is an 'Import Duty '
Import duty is a tax collected on imports and some exports by the customs authorities of a country. It is usually based on the value of the goods that are imported. Depending on the context, import duty may also be referred to as customs duty, tariff, import tax and import tariff.
BREAKING DOWN 'Import Duty 'There are two distinct goals to import duties: to raise income for local government, and to give a market advantage to locally grown or produced goods that are not subject to import duties. A third related goal is sometimes to penalize a particular nation by charging high import duties on its products.
In the United States, duty rates are established by Congress. The rates for imports are listed in the Harmonized Tariff Schedule (HTS), which is published by the International Trade Commission (ITC). Different rates are applied depending on the countries' trade relations status with the United States. The general rate is for countries that have normal trade relations status with the United States. The special rate is for countries that are not developed or are eligible for an international trade program.
In practice, import duty is levied when imported goods first enter the country. For example, in the United States, when a shipment of goods reaches the border, the owner, purchaser or a customs broker (the importer of record) must file entry documents at the port of entry and pay the estimated duties to the Customs Agency.
The amount of duty payable varies greatly depending on the good being imported, the country of origin and several other factors. In the United States, the HTS, which has several hundred entries, is used to determine the correct rate.
Ultimately for consumers, the cost of the duty is added to the price paid for the good. As such, all other things being equal, the exact same good produced internally should cost less, giving an advantage to the local producers.
Around the world, several organizations and treaties have direct impacts on import duties. Several countries have tried to reduce duties to promote free trade. The World Trade Organization (WTO) promotes and enforces commitments that its individual member nations have made to cut tariffs. These commitments are made during complex rounds of negotiations.
Another example of an international effort to reduce tariffs is the North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico. Under NAFTA, tariffs have been completely eliminated as of 2008.
In February 2016, 12 Pacific Rim nations entered into the Trans-Pacific Partnership (TPP), which significantly impacts the import duties between these countries. It is expected to take several years before the TPP comes into force.