Our Weblog: Excerpts of Exports
Tuesday, March 30, 2010
Don’t Pay Duties on Imported Parts
Interesting article in last weekend’s WSJ that got me thinking about duties paid by US companies that are not owed. But first the article that makes the point that U.S. trade imbalances are not as bad as they seem. 
The example given is China. China imports $146.00 worth of components adds their $4.00 worth of components but then has an export to the U.S. that is valued at $150. The author, John Miller, states that if only the value added by China, in this case $4.00, was the value of the export then the trade deficit would be 30% lower than it is now stated to be. He takes it one step further by looking at the issue from a political perspective when he says “inflated trade deficits with China stoke fears in the U.S. about job losses”.
So now on to the needless payment of duties by U.S. companies. In working with manufacturers, I find that they do not know they pay duties on imported parts. I always advise that they determine what duties they are actually paying on components that they then re-export. Not having to pay the duty could be the difference between being competitive in a foreign market or not. True or not, one thing is certain. If you are not required to pay the duty don’t pay it. Instead the U.S. exporter should investigate these two options: Duty Drawback or a Free Trade Zone.
1. Duty Drawback is where the company goes through a fair amount of paperwork an get most of their duty returned. You pay it since it is incorporated into the price of the component and then you get it returned to you. Duty Drawback requires the cooperation of the company who sells you the product.
2. Set-up or become a part of a free trade zone (FTZ) where you import the products into the FTZ and include it in the end product and then re-export. The manufacturing of the product is actually done in the FTZ. This is sort of a limbo area where there are no duties or quotas added to imported products.
Of course, you need to find out how much in duties you are actually paying to determine if this is a wise move. If you would like additional information, please e-mail me at and I will arrange for your 30 minute free consultation.