Businesses everywhere are cutting costs and laying off employees. Sales and profits are declining in most sectors of the economy, companies are filing for bankruptcy protection or closing down, and we have yet to see the long-anticipated results of the Obama administration’s stimulus plan.
For importers operating in this brutal environment, there are several ways to cut costs and save duty that may not be obvious:
1. Structure your import transactions to take advantage of the “first sale” basis of customs valuation, well-established by the courts and Customs for more than 20 years. In a multi-tiered sales transaction to the U.S., an importer can lawfully pay duty on the price from a manufacturer to a middleman, rather than on the price the importer pays to the middleman. A “first sale” structure can be accomplished even when importers purchase directly from their own foreign-based factories. This takes careful planning to be done correctly, but can be well worth the investment in the form of significant duty savings on the difference in the first sale and second sale prices.
2. Take advantage of duty drawback if you export goods previously imported into the U.S. or made with goods previously imported into the United States. You are entitled to a refund of 99 percent of the duty paid on the imported articles or materials. Many importers routinely export to customers outside the U.S. without even considering this benefit.
3. Get your duty-free treatment for your products through a Miscellaneous Tariff Bill. There is a strong possibility Congress will act on a new MTB this year. The MTB offers a reduction or suspension of duty for three years. As long as no U.S. producer is negatively impacted, it can cover either inputs used to manufacture another product, or a finished product no longer manufactured in the United States. This legislation is useful for high-volume-low-duty (nuisance tax) goods or high-duty products.
4. Preserve trade preference programs. The Generalized System of Preferences, Andean Trade Promotion and Drug Eradication Act, and Caribbean Basin Trade and Partnership Act that offer tariff preferences for less developed countries all expire at the end of 2009. Congress plans to hold hearings on the possibility of reforming the entire GSP program. Anyone currently utilizing these programs could lose the ability to continue to import duty free under them. Don’t be caught unaware. Stay abreast of these developments and make sure your products are protected.
5. Utilize free trade agreements: The U.S. has entered into a myrad of FTAs with numerous countries and regions, including the North American Free Trade Agreement, Central America Free Trade Agreement and bilateral deals with Chile, Singapore, Peru, Morocco, Bahrain, Israel and Jordan. Consider sourcing your products from these countries.
6. Duty/tax/fee deferral or elimination. Various programs and practices, including foreign trade zones, bonded warehouses and temporary import bonds, allow companies to defer — and sometimes eliminate — duty payments on shipments to the United States. These are options to consider if you import goods into the U.S. for further processing, inventory, exportation or if you can consolidate shipments in order to make larger entries (thereby reducing Merchandise Processing Fees).
7. Duty savings on international transport charges. Importers who purchase on terms other than ex-factory often do not take all the permissible duty deductions relating to charges incidental to the shipment of the goods. For example, if goods are shipped f.o.b. foreign port, the invoice cost (and dutiable value) will include terminal handling charges, forwarder commissions, documentation fees and other expenses that can be lawfully deducted from dutiable value.
8. Reconciliation cash flow. If the importer directly or indirectly provides the foreign manufacturer with materials, parts, equipment, molds, non-U.S. design or engineering for the production of merchandise that is outside the manufacturer’s price, such items are considered “assists” and must be added to the dutiable value of the imported merchandise. The reconciliation process enables importers to declare the value of such assists that apply to continuous shipments to the U.S. after the close of the fiscal year, thereby realizing cost savings provided by the cash flow of deferring duty on the assists.
9. E-Customs cash flow benefit. The Automated Commercial Environment is the next generation of customs processing that permits importers who establish ACE accounts to pay duty on entries released during a month by the 15th working day of the following month (periodic monthly statement entry processing), thereby providing significant cash-flow advantages.
10. Tariff engineering. Customs classification decisions are reviewed and revised constantly by Customs and Border Protection. These decisions are published in the Customs Bulletin, which most importers do not consult. To avoid the surprise of a reclassification of your products at a higher or lower rate of duty, it is important to continuously review the latest customs classification rulings that may affect your products and possibly provide opportunities for duty savings.