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

Africa Sourcing and the AGOA Extension

"AGOA Provision Related to the Third Country Fabric Provision Anticipated to Pass Congress Next Week"

    

     --  Staff Member, U.S. Senator Menendez' office in DC

This week I attended TEXWORLD in NYC, which is a textiles and apparel trade show open to those of us in the industry and the public at large. 

While Chinese suppliers made up a large majority, I was pleased to see others hailing from S. Korea, Turkey, and of course, India, among others, as well as a corridor for African sourcing, with a number of vendors from Mauritius, and Origin Africa (http://originafrica.org).

Together at the convention were a series of public seminars, one of which focused on trade and Africa, and particularly on sourcing from Africa. Many companies are interested in sourcing from Africa, and this interest has been steadily growing since the AGOA agreement came into effect.

Currently, we are awaiting the (hoped for and) anticipated passage of a special provision of the African Growth and Opportunity Act (AGOA) 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.  For more information on AGOA, check out my other articles here:

The African Fashion Industry – Can in Benefit From AGOA?

The African Fashion Industry and AGOA

I spoke with Senator Menendez’ (NJ state senator) staff in Washington DC yesterday, who assured me that there is a lot of bi-partisan support for the passage of the AGOA provision awaiting passage by the Senate, which involves the continued permission for imports into the US to qualify for the duty-free treatment accorded by the AGOA agreement when fabrics from non-African/non-US countries had been used in the construction of the garment.

I expressed to the staff member that these types of delays make it difficult for businesses to accurately make financial projections in the uncertain commercial environment created when company’s do not know if their cost of importation is going to rise, on average, from anywhere between 10% to 35%.  It therefore, could serve as a deterrent from sourcing from Africa which defeats the whole purpose of a program like the AGOA that is intended to promote increased sourcing from Sub-Saharan Africa.

He assured me that this was known but explained that the AGOA passage was tied up with other trade bills that likewise needed support and which, in their current forms, were not fully supported.

Many people are calling there to express their support for the passage and I encourage you to do the same.  The telephone nos. for Senator Menendez’ office is (202) 224-4744 and the general switchboard in order to be connected to any U.S. Senator’s office is (202) 224-3121.

Feel free to call over there and when connected to a Senator’s office, tell them you would like to speak to someone regarding the “Africa trade bill,” – they’re more likely to understand this comment than stating the "AGOA agreement" - and then express why continued legislative AGOA support is important to you.

Exercise your voice.  Isn’t this what a democracy is all about?

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

New Importers and Federal Agency Requirements

I met a woman recently who showed me the cutest dresses for babies, so cute in fact, that I was “gushing” over how cute one sample dress was!

Aesthetics aside, I quickly realized that like most new importers, this aspiring one of babies wear had much to learn about lawfully importing into the US.  All consumer products are subject to compliance with the rules laid out by US federal agencies, whether it is related to food (for which the Food and Drug Administration (FDA) or US Dept. of Agriculture (USDA) has oversight), clothing (which has multiple agencies overseeing the product, and for which the requirements may change depending upon the nature of the product), or any other product.

It is important to note that any article being imported into the US must also comply with US Customs own guidelines.  Additional agency rules on apparel come into play thereafter, such as the Federal Trade Commission’s (FTC) rule on the disclosure of fiber content, or the Consumer Product Safety Commission’s (CPSC) tracking label requirement on children’s products.

As US Customs is the “watchdog” for compliance with other federal agency requirements at the border, products that are not compliant with it’s product specific rules run the risk of being held up at the border, directed to be re-exported, or even worse, seized by the US government.

All of these rules are not only applicable at importation but in the case of clothing, they should also be known by those interested in manufacturing, distributing, selling, and for certain products, even offering to sell these articles. 

So for those of you interested in buying a business or even just buying products from distributors here in the USA, remember, the goods you sell must be compliant too with federal and state regulations or you can be at risk of fines and penalties from the different federal and state agencies.

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

Africa Fashion Panel and International Trade

Yesterday I had the opportunity to attend a panel discussion on Africa Fashion that was hosted by my department at F.I.T., the International Trade and Marketing Dept., and produced by Adiree for Africa Fashion Week New York, which is going on this week. 

The questions were thought provoking and covered questions that “inquiring minds wanted to know.”  The responses from the panelists were a combination of experience, inspiration, and the reality of the business, such as comments from a gentleman regarding designing with the fabrics and the color palettes “du jour” in order to be a little more mainstream (which I translated to mean larger consumer base, or in other words, more buyers).

Earlier in the day I had been showing my bright and enthusiastic law clerk the trend forecasts for 2011 during a discussion on importing samples not for resale.  Sure enough, she was amazed at how the colors and fabric blends we see people on the street still wearing this year were those forecasted (for industry purposes) back in 2009, for 2011.  His comment therefore, really resonated with me, as designers and many other industries use these books in order to know the “trend” ahead of time, and use colors and fabrics accordingly in their season’s collections.

The social enterprise aspect of the African Fashion Industry was compelling as well, as not only did the many panelists share the component of their operation that was giving back to a community, whether it was creating libraries or internships overseas, another pointed out how merely sourcing from an African country and thereby, creating jobs and teaching skills, was very much a social enterprise in and of itself.

Talking with the designers about infrastructure issues in African countries, and one designer in particular about her production in Zimbabwe where goods need to be transported to South Africa for export, brought to light the costs involved in doing international trade when selling to foreign markets.  It also brought to light corruption issues involved in transportation and reminded me of the insurance and accountability issues that are realities in all foreign transactions, not just Africa.

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

Africa Fashion and International Trade Panel - TODAY 2 - 4 PM

Hope you can join me this afternoon for this free Africa Fashion Week New York/Fashion Institute of Technology (FIT) Event in NYC!


Topic: Africa As An Emerging Market for  Luxury | Sustainable | Eco-Friendly Fashion(s)

• Date: Wednesday, July 11, 2012
• Time: 2 PM to 4 PM

Location: Katie Murphy Amphitheater at FIT
                7th Ave W 27th St
                New York, NY 10001 – 59