What is {term}? Import Duty

Import duty is a tax collected on imports and some exports by a country's customs authorities. It is usually based on the imported good's value. Depending on the context, import duty may also be referred to as customs duty, tariff, import tax or import tariff.

BREAKING DOWN Import Duty

Import duties have two distinct purposes: raise income for the 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, Congress established import duties. The rates for imports are listed in the Harmonized Tariff Schedule (HTS), which is published by the International Trade Commission. Different rates are applied depending on the countries' trade relations status with the United States. The general rate applies to countries that have normal trade relations with the United States. The special rate is for countries that are not developed or are eligible for an international trade program.

Import Duty in Practice

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 Customs.

The amount of duty payable varies greatly depending on the imported good, the country of origin and several other factors. In the United States, Customs uses the HTS, which has several hundred entries, to determine the correct rate. For consumers, the price they pay includes duty costs. Therefore, all other things being equal, the same good produced internally should cost less, giving local producers an advantage.

International Organizations

Around the world, several organizations and treaties have a direct impact on import duties. Several countries have tried to reduce duties to promote free trade. The World Trade Organization promotes and enforces commitments that its member nations have made to cut tariffs. Countries make these commitments during complex rounds of negotiations.

Another example of an international effort to reduce tariffs is the North American Free Trade Agreement between Canada, the United States and Mexico. Since its enactment in 2008, NAFTA has eliminated tariffs, except those on certain agriculture, between the three North American nations. 

In February 2016, 12 Pacific Rim nations entered into the Trans-Pacific Partnership, which significantly impacts the import duties between these countries. It is expected to take several years before the TPP comes into force.