For many US companies, manufacturing products in Asia is the most cost-effective method. Goods manufactured in China, Indonesia, Vietnam and elsewhere are imported in ocean containers. These goods are then moved to a distribution center, and are either shipped to individual retail outlets or sold online.
Today, more and more shoppers are buying online in the US, Canada and Europe. As a result, more shipments are moving to consumers in smaller quantities both at home and abroad. Many items originally imported into the US with duty paid are then re-exported. In some cases, the duties paid on these imported items can be significant.
Let’s take the case of an importer of men’s man-made fiber shirts. The main portion of the harmonized number for these items is 6205.30. The US duty rate is 29.1 cents per kilogram and 25.9% on the value. (It is worth noting that this compound duty rate composition is more commonly seen in apparel.)
If the imported shirts are purchased for $10 each then the duty imported into the US is $2.59 plus 29.1 cents or $2.88, assuming the shirt weighs one kilogram. If this same item is then repacked and sold to Canada, an additional duty of 18% plus 5% goods and services tax (GST) is also applied. Therefore, if the sales price online is $20 per shirt, the importer into Canada pays 18% of $20, or $3.60, in duty and a GST calculated at 5% of 20+3.60, or $1.18. (This example assumes the US and Canadian dollar are roughly equivalent. The conversion rate today is $1.09 Canadian dollars for each USD.) So what can shipper/seller do to minimize the duties spent on these items? There are five options:
1. NAFTA - If firms can manufacture their garments in the US or Mexico for $12.59 or less, duty free movement between the NAFTA nations allows firms to reduce international freight costs, and also save the Canadian customer 18% on the sales price.
2. Separate Canada shipments- Creating a separate, less than container load shipment to a Canadian distribution point also eliminates US duty on goods destined for Canada. Despite the US duty savings of $2.88 per garment however, this method increases shipping cost from two to ten times, depending on how much is shipped direct to the Canadian distribution center.
3. Foreign Trade Zone (FTZ). Identifying the Canadian portion of the shipments into the US and moving that quantity into a duty free zone also avoids US duty. Unfortunately, this method does incur handling costs into and out of the zone.
4. Movement under bond- You can devan the container at the pier and mark the Canadian portion of the shipment for movement under bond to Canada, while paying duty on the portion destined for the US. You could also do this type of operation at an FTZ and withdraw for US destined goods for duty payment or export duty free to Canada under bond.
5. Duty Drawback. The final option is to pay duty on all goods and then track the amount shipped to Canada and the rest of the World and develop a claim for a “same condition drawback.” There are a lot of details to make a drawback program work, but if none of the above options are viable, it is an approach to recover most of the duty paid in the US.
Summary: Movement from Asia to the US and Canada can result in payment of double duties. Five different methods were reviewed to address these duty amounts. No matter which option you choose, there will be costs for handling. But when duty rates approach 20%, it can be worth installing a duty management program.
Today, more and more shoppers are buying online in the US, Canada and Europe. As a result, more shipments are moving to consumers in smaller quantities both at home and abroad. Many items originally imported into the US with duty paid are then re-exported. In some cases, the duties paid on these imported items can be significant.
Let’s take the case of an importer of men’s man-made fiber shirts. The main portion of the harmonized number for these items is 6205.30. The US duty rate is 29.1 cents per kilogram and 25.9% on the value. (It is worth noting that this compound duty rate composition is more commonly seen in apparel.)
If the imported shirts are purchased for $10 each then the duty imported into the US is $2.59 plus 29.1 cents or $2.88, assuming the shirt weighs one kilogram. If this same item is then repacked and sold to Canada, an additional duty of 18% plus 5% goods and services tax (GST) is also applied. Therefore, if the sales price online is $20 per shirt, the importer into Canada pays 18% of $20, or $3.60, in duty and a GST calculated at 5% of 20+3.60, or $1.18. (This example assumes the US and Canadian dollar are roughly equivalent. The conversion rate today is $1.09 Canadian dollars for each USD.) So what can shipper/seller do to minimize the duties spent on these items? There are five options:
1. NAFTA - If firms can manufacture their garments in the US or Mexico for $12.59 or less, duty free movement between the NAFTA nations allows firms to reduce international freight costs, and also save the Canadian customer 18% on the sales price.
2. Separate Canada shipments- Creating a separate, less than container load shipment to a Canadian distribution point also eliminates US duty on goods destined for Canada. Despite the US duty savings of $2.88 per garment however, this method increases shipping cost from two to ten times, depending on how much is shipped direct to the Canadian distribution center.
3. Foreign Trade Zone (FTZ). Identifying the Canadian portion of the shipments into the US and moving that quantity into a duty free zone also avoids US duty. Unfortunately, this method does incur handling costs into and out of the zone.
4. Movement under bond- You can devan the container at the pier and mark the Canadian portion of the shipment for movement under bond to Canada, while paying duty on the portion destined for the US. You could also do this type of operation at an FTZ and withdraw for US destined goods for duty payment or export duty free to Canada under bond.
5. Duty Drawback. The final option is to pay duty on all goods and then track the amount shipped to Canada and the rest of the World and develop a claim for a “same condition drawback.” There are a lot of details to make a drawback program work, but if none of the above options are viable, it is an approach to recover most of the duty paid in the US.
Summary: Movement from Asia to the US and Canada can result in payment of double duties. Five different methods were reviewed to address these duty amounts. No matter which option you choose, there will be costs for handling. But when duty rates approach 20%, it can be worth installing a duty management program.
