When it comes to Charging Duties, Not all Countries are Equal
November 03, 2017 7:43 PM
You readers in the B2C space have been preparing for the holiday gift-giving season since last year. If your selling on Webport Global and other e-commerce platforms, you’re not only preparing for Christmas, but also Chinese New Year, which is celebrated in late January and February. One aspect of the preparation is to know the dollar value at which and below no duty is charged.
This rate is called de minimus, and many countries have different rates—some generous for buyers, others not. This rate is important for the sale of lower value items, usually a single shipment of a consumer product, which comprise the majority of e-commerce transactions.
De minimus doesn’t apply if the country your business ships from has a free trade agreement with the country you’re shipping to. That is provided the good meets the local content rule included in the agreement. If the value of content originating in your market (market A) meets the rule, the duty imposed by the buyer’s country (country B) is often zero. If your country has an agreement with multiple countries (think NAFTA and CAFTA for the U.S.), the duty will be zero in all of them. If the good doesn’t qualify, for example most of the value originates in countries not involved in the trade agreement between your and the buyer’s country, then the full de minimus duty will apply.
Is that a big deal? The average duty among WTO member countries, and that includes more than 100 nations, including the biggest markets, is 5%. That’s average, and can go substantially higher depending on the kind of item. But even 5% is a cost the customer usually pays, making the final sales price that much higher with freight and additional transaction costs yet to be calculated.
What are the lowest and highest de minimus rates around? The U.S. offers the best deal at $800—a boon for U.S. consumers. No duty until the value of the good exceeds that amount. At the other end of the spectrum is the Philippines with a whopping 48 cents before the duty kicks in. Also on the parsimonious side are China at $8 and Canada at $16.03. Note that these amounts change daily due to fluctuations in currency values. If you price your goods in U.S. dollars, a strong currency right now, your customers in a country with a weak currency compared to the dollar will pay more than if there was currency parity. That’s also why de minimus matters because you always want to keep all costs as low as possible.
Shopping around for ways to give consumers a break, you’ll find that Australia is good at about $777. The EU including the UK is about $167. Mexico is $50, dearer than Canada, but like its neighbors to the north, a NAFTA member. Qatar is $800, and seeking to replace suppliers now that Saudi Arabia, Egypt and a couple of other countries have hit it with a partial boycott. Better may be Azerbaijan at $1000, besting the U.S. by $200.
Increasing the de minimus rate would give global e-commerce a big boost, but don’t hold your breath. Customs agencies generate a lot of revenue for national treasuries. The U.S. Congress did instruct the executive branch to actively work with other countries to increase their threshold after Congress agreed on the increase for the U.S. That was a couple of years ago, and takers have been scarce. Still, global e-commerce continues to expand and shows no sign of slowing anytime soon.
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