A tariff is a tax or duty applied on goods imported or exported across international borders. Tariffs can be:
- Fixed, when the tariff is a constant sum per unit or percentage of the price; or
- Variable when the amount varies based on the price.
What is a Tariff?
Simply put, a tariff is a tax imposed by one country on goods imported from another country.
In the United States, these taxes are levied on the value of the commodity, including the freight and insurance costs of an imported good. Free Trade Agreements (FTAs) with multiple countries reduce the cost of international trade between the U.S. and those locations.
Businesses that are qualified for international trade can use the Customs Info Database from the International Trade Administration (ITA) to identify and estimate applicable tariff and tax rates for international shipments to over 170 countries.
How are tariff costs calculated for international shipments?
The tariff, along with the other assessments, is collected at the time of customs clearance at the international port of entry.
Although estimated tariffs and taxes can be calculated, only customs officers in nations accepting entry can make the final determination on cost.
What Is Included in a Tariff Cost?
- A fixed fee per unit, regardless of weight or size.
- A percentage of the value of the imported goods.
- A quota that allows a specific quantity, then increases the cost beyond that quantity.
Who Pays Tariffs?
In the U.S. and most other countries, the importer is responsible for tariff payment. Tariff payment is required when goods enter the country – once they have been cleared by customs.
Who Sets the Tariff Rate?
Each nation levies various tariffs depending on factors such as the country of origin, materials used in the commodity, and classification code.
Tariffs are set by the country of import, but are often negotiated between one or more countries in the form of trade agreements. For exports between the U.S. and other countries, Free Trade Agreements (FTA) may apply.
What are the penalties for non-compliance with tariff regulations?
When businesses do not comply with tariff regulations, they may experience short-term delays, financial repercussions, or reputational harm. As a result, freight management companies may find it difficult to continue importing goods into a specific country.
What are Free Trade Agreements (FTAs) in international shipping?
Businesses that meet specific requirements for rules of origin may be able to take advantage of Free Trade Agreements (FTAs), which reduce or eliminate tariffs for eligible goods. Access information about FTA requirements, countries, and qualifying commodities online here.
The United States has several free trade agreements in effect with multiple countries. According to the United States Trade Representative, “these free trade agreements build on the foundation of the WTO Agreement, with more comprehensive and stronger disciplines than the WTO Agreement.”
Many FTAs are bilateral agreements between two governments, but some are multilateral agreements made among several parties or agreements focusing on the free trade of specific commodities.
Take a proactive and informed approach to tariff management
What are Harmonized System (HS) codes?
Harmonized System (HS) codes are used by countries across the world to classify goods during import and export processes. The World Customs Organization (WCO) administrates the HS and it:
- Assesses duties and gathers statistics as goods move through customs.
- Identifies and describes products uniformly.
- Assigns specific six-digit codes for varying classifications and commodities.
- Allows countries to add longer codes to the first six digits for further classification.
The Harmonized System is not utilized by U.S. Customs to classify imported goods. The U.S. instead uses the Harmonized Tariff Schedule (HTS).
What is the Harmonized Tariff Schedule (HTS)?
According to the United States International Trade Commission (USITC), “the Harmonized Tariff Schedule of the United States (HTS) sets out the tariff rates and statistical categories for all merchandise imported into the United States. The HTS is based on the international Harmonized System (HS), which is the global system of nomenclature applied to most world trade in goods.”
Companies importing goods into the United States can visit the USITC website to find resources and search the current database.
How can transportation and logistics companies reduce tariff costs?
Companies may need to adjust sourcing to reduce tariff costs, such as diversifying suppliers or shifting production locations. Renegotiating supplier contracts and leveraging FTAs can help companies reduce overall costs related to international shipping.
During unexpected events or disruptions, utilizing a transportation management system (TMS) that supports global operations can help alleviate costs related to:
- Finding and booking transportation.
- Managing documents and signatures.
- Reducing manual errors that create additional costs.
How MercuryGate Supports Tariff Management
Automation and artificial intelligence tools in transportation management systems (TMS) can streamline tariff classification, customs documentation, and compliance monitoring for imports and exports. Businesses can rely on trade compliance experts, automated systems, and government resources to navigate the complexities of tariffs effectively.
Utilizing the capabilities of a TMS can help businesses automate and expedite tariff management tasks, which prevents unexpected fees and helps avoid confusion, delays, and customer service concerns. With a TMS, you can streamline global sourcing and compliance tasks, including:
- Classify goods accurately using HTS codes.
- Identify tariff exemptions and FTAs for specific commodities.
- Estimate the cost of tariffs and duties for specific goods or shipments.
- Maintain visibility to shipment location, customs clearance, and ETA.
- Manage documents, including signature acquisition and sharing with stakeholders.
- Incorporate regulatory changes through alerts and automated updates.
- Conduct audits to identify excessive costs, fees, detention, and compliance issues.
- Train employees on global trade management and customs best practices.
Gain access to transportation efficiency and international trade capabilities that build resilience in your global supply chain. Simplify the entire transportation journey with MercuryGate TMS – a platform that automates workflows and easily shares data with stakeholders, brokers, and customs enforcement entities.
Support for International Shippers and Freight Forwarders
MercuryGate’s Transportation Management platform enables international shippers and freight forwarders to automate workflows while sharing data easily with their trading partners, agents, and customs enforcement.
As a cloud-based solution, MercuryGate TMS integrates transportation data to provide real-time visibility to shipment details and access to electronic HTS documentation required in trade.
- Directly file Electronic Export Information (EEI) via the Automated Export System (AES) and submit Importer Security Filings (ISF) to comply with 10+2 regulations.
- Generate all necessary import and export paperwork with MercuryGate’s template management tool.
Take a proactive and informed approach to tariff management with TMS solutions and logistics expertise from MercuryGate.
