Customs Duty vs. Tariff

When it comes to paying fees on imports, there is a difference between customs duty vs. tariff. They are both a type of tax imposed on products imported from another country into the United States. They are meant to  protect United States industries from low-cost manufacturing that is done abroad and imported into the U.S. Below are definitions of customs duty vs. tariff.

Customs Duty

Customs Duty is an indirect tax on on a consumer who imports (and exports) goods. It is levied by the customs authorities of a country on the value of goods or upon the weight, dimensions, etc. The purpose is to raise state revenue to offset the cost of cheaper manufacturing done abroad. Customs duties vary by country of origin and product and are enforced by the United States Customs and Border Protection(CBP).

Valuation can be quantified through the following methods:

  • Comparative Value Method – Comparison with transaction value of identical goods 
  • Comparative Value Method – Comparison with transaction value of similar goods
  • Deductive Value Method – Based on sale price in importing country
  • Computed Value Method – Based on cost of materials, fabrication and profit in country of production
  • Fallback Method – Based on earlier methods with greater flexibility

The importer pays the duty at the time of import. Trade agreements can exempt certain countries from customs duty. Specific goods can also be exempt.

Types of customs import duties are as follow:

  • Basic duty
  • Additional Customs duty
  • True Countervailing duty or additional duty of customs
  • Anti dumping duty/Safeguard duty

Tariff

A tariff is a tax imposed by the government that is paid on a particular class of imports or exports. Tariffs can cause a price increase on goods imported into the U.S. This would hopefully decrease the amount of imported goods and increase the amount of good manufactured in the U.S. It is supposed to persuade Americans to purchase goods made in the U.S.

How FTZ’s can help

Foreign-trade Zones are secure areas physically in the United States. They are legally outside the customs territory of the United States. Goods in a Foreign Trade Zone are not considered imported to the United States until they leave the zone. 

Goods may be stored in a bonded warehouse or a Foreign Trade Zone in the United States for up to five years without payment of duties. CBP assesses duty, which must be paid by the importer of record before goods can be released. Foreign goods may be used to manufacture other goods within the zone for export without payment of customs duties.[9]Zones are limited in scope and operation based on approval of the Foreign Trade Zones Board. Zones are generally near ports of entry, and may be within the warehouse of an importer.

Sources: 

https://en.wikipedia.org/wiki/Customs_duties_in_the_United_States

https://www.cbp.gov/travel/international-visitors/kbyg/customs-duty-info