Translating Numbers – Converting a “Compound Duty Rate” to an Equivalent “Ad Valorem” Duty Rate

Every type of imported product has a tariff classification number to identify it and a corresponding numerical figure that represents its duty rate.

The duty rate for most products is represented as a percentage value such as 19.7%.  When it is a percentage, a duty rate is referred to as an “Ad Valorem” rate of duty.

The concept of a duty rate is relatively simple except for when a product has a “compound rate” of duty, such as a watch.  Under the tariff, an example of a watch’s rate of duty is broken out into multiple components, four (4) in fact, in the following example (HTSUS* 9102.11.10):

Movement – 0.44¢ (cents)

Band/strap or bracelet – 14.0%

Case – 6.0%

Battery – 5.3%

On certain occasions however, there is a need to convert a compound rate of duty to a percentage, or Ad Valorem one, such as in the case of dinnerware sets classifiable under HTSUS Heading 8215.

As described by US Customs**, to convert a compound rate to an equivalent Ad Valorem rate, one.

(i)                  obtains the unit value of each article,

(ii)                applies the article’s listed compound rate of duty, and

(iii)               calculates the “equivalent Ad Valorem rate” by computing the percentage of the article’s value that the compound rate of duty amounts to. 

For example, suppose that a set classified in subheading 8215.20.0000, includes a knife that is separately classifiable in subheading 8211.91.5000.  The applicable rate of duty for the knife is “0.7¢ + 3.7%,” a compound duty rate.

Suppose that there are four knives included in the set and their total value is 32¢.  To obtain the unit value of a knife (i.e., the value of one knife), we divide 32¢ by 4 which equals 8¢.

Now, we apply the knife’s listed compound duty rate.  Plugging 8¢ into the duty rate, we get 0.7¢ + 3.7%(8¢).  This equals .996¢ per knife, which amounts to 12.45% of the knife’s value (i.e., .996 is 12.45% of 8¢). 

Therefore, 12.45% is the knife’s equivalent Ad Valorem rate. 

Sounds simple?  I didn’t say it would be, though it doesn’t have to be complicated either.  Give it a try!

Questions/comments?  Post below or email me at clark.deanna@gmail.com

* HTSUS stands for the "Harmonized Tariff Schedule of the United States" which can be found at the US International Trade Commission's website at www.usitc.gov

**Reference is made to HQ967248 (12/22/04)

Gift Sets and Other “Sets For Retail Sale”

Ever find yourself at the shopping mall debating over whether or not to buy a single product or to go ahead and splurge on the gift set instead?

After all, the gift set comes with all of these extra articles that you may be interested in using, but simply don’t know yet (because you haven't tried it) right?!

When it comes to a “set” for US Customs classification and valuation purposes, a set as the average consumer knows it, is not necessarily the same definition as that of US Customs.

 For one, in order to be considered a set, the products all need to work “in concert” together if you will.

Specifically, to be a “set for retail sale,” the set must

ü  Consist of at least 2 different articles classifiable in different headings,

ü  Consist of products put up together to meet a particular need or carry out a specific activity, and

ü  Be put up in a manner suitable for sale directly to users without repacking

An example of this would be a tube of a skin exfoliant that comes packaged with a loofah sponge.  These two articles are sold together to carry out the specific activity of skin softening or other skin care.

When a set is does not meet the above standard, that is, where an item is imported with another article and packaged together but are NOT intended to meet a particular need or carry out a common specific activity, such as in the case of a facial cream and a finger nail file being imported together, then each item should be classified separately.

Questions/comments?  Post below or email me at clark.deanna@gmail.com.

AGOA Third Country Fabric Provision Extended to 2015

With the AGOA’s Favorable Duty Rates, Apparel Importers Can Find Greater Savings When Sourcing From African Countries

The cost of an imported product can vary tremendously when the amount of duty to be paid is factored into the equation, and in the case of apparel, it can run anywhere from an average of $16 to $32 extra for every $100 imported into the US, when made in a foreign country such as China.

The African Growth and Opportunity Act (AGOA) has a provision for imports of apparel when sourced from certain Sub-Saharan African countries, where such clothing originates from either African or US components.  It provides for the duty-free treatment of these products which means rather than paying the additional $16-$32 in duties for every $100 of imported apparel, $0 in duties is instead owed.

Within the AGOA is a “Third Country Fabric” provision which allows fabrics from other countries to be used in the manufacturing process and still qualify for the benefit of “AGOA treatment,” i.e., duty free treatment, of the product.

Last Friday, August 10, 2012, President Obama signed the bill (H.R. 5986) which had been passed on August 2, 2012 by the House and Senate to amend the African Growth and Opportunity Act’s (AGOA) “Third Country Fabric Program” as well as to add South Sudan to the list of countries eligible for designation under the AGOA.

With this passage, apparel importers can now continue to place orders with African manufacturers with the knowledge that these duty savings will continue for the next few years, saving them money, and perhaps saving us consumers some as well.

Questions/comments?  Post below or email me at clark.deanna@gmail.com