Tariffs have a great influence on international trade. Therefore, it is essential to understand the concepts of various terms related to tariffs and international trade in order to lead a successful business targeting the international market. In the article below, let's take a look at seven key customs terms among the various related terms.
1. Customs Duty
Tariffs are levies imposed by the government on imported products and are typically calculated based on the value or weight of those goods. Customs authorities in the importing country usually collect these tariffs, which are paid in addition to the price of the imported items at the time of importation. Tariffs serve as a significant source of revenue for countries, and they have the ability to increase tariffs rates if necessary to protect domestic industries and maintain price competitiveness for their manufacturers.
Determining which goods and services should be taxed, under what conditions, and at what rate is established through negotiations conducted within international trade agreements and free trade agreements. These agreements are developed through mutual cooperation between nations while adhering to regulations outlined by organizations such as the World Trade Organization (WTO) or International Trade Organization (ITO).
To minimize the impact of tariffs, import and export businesses must possess a comprehensive understanding of government tariff policies and international agreements. Furthermore, it is crucial to familiarize themselves with rules of origin, a prerequisite for free trade agreements. Lastly, they should develop and periodically assess trade strategies that take into account tariff rates and preferences. By doing so, companies can effectively navigate the complexities of global trade while optimizing their operations in alignment with prevailing regulations and market conditions.
2. Tariff Rate
The tariff rate refers to the percentage of import duties imposed on goods. The tariffs vary depending on the country, region, and specific product, often determined by trade agreements or import classifications. These rates directly influence the price of imported goods, thereby affecting their competitiveness in the market.
3. Customs Agreement
Customs agreements are bilateral or multilateral agreements that establish the rates and application of tariffs on imports between nations. These agreements aim to facilitate trade cooperation and ensure a fair distribution of tariff burdens. Prominent examples of such agreements include the General Agreement on Tariffs and Trade (GATT) by the World Trade Organization, as well as Free Trade Agreements (FTA). One notable FTA is the USMCA, previously known as NAFTA, which involves the United States, Canada, and Mexico. Additionally, Korea has successfully negotiated around 21 free trade agreements with various countries. Experts in each respective field are diligently working towards achieving more advantageous terms for domestic industries in these ongoing negotiations.
4. Customs Refund
Customs agreements are pacts that determine the rates and application of tariffs on imports between two nations or among multiple countries. These agreements aim to enhance trade cooperation and balance the burden of tariffs. Prominent examples of tariff agreements include the General Agreement on Tariffs and Trade (GATT) by the World Trade Organization, as well as Free Trade Agreements (FTA). One notable FTA is the USMCA, which initially was known as NAFTA and involves the United States, Canada, and Mexico. Furthermore, Korea has approximately 21 FTAs with various countries, with experts in each domain striving to negotiate more advantageous terms for domestic industries.
5. Harmonized System Code
The Harmonized System (HS) is a globally recognized and standardized code system established by the World Trade Organization (WTO) for classifying and identifying imported goods. It plays a crucial role in international trade by providing consistency, efficiency, and transparency. This system categorizes goods uniformly through the assignment of a 10-digit HS code to each item, facilitating swift import and export procedures while enabling collective tariff rates and applications.
The first six digits of the HS code are internationally classified based on factors such as the nature, usage, and country of origin of the product's raw materials. However, the remaining four digits may vary from one country to another depending on specific requirements. For example, in Canada, these last two digits are utilized for statistical purposes.
Accurate allocation of HS codes holds immense significance during the import process as it determines various aspects like tariffs applied, relevant trade agreement treaties involved, applicable tariff rates, etc. Using an incorrect HS code can lead to unexpected penalties or disadvantages in the long run. Hence it is vital to consult with customs officials or experts when determining appropriate HS codes for imports.
By adhering to this international standard classification system provided by WTO's Harmonized System (HS), businesses can ensure smooth operations within global trade networks while avoiding potential complications that may arise due to misclassification.
To locate the HS codes for imports into Korea, refer to the 'Tariff Rate Table' on the Customs Law Information Portal site below.
관세법령정보포털 CLIP
unipass.customs.go.kr
6. Rules of Origin
Identifying the origin of imported goods is a critical factor in international trade, especially when engaging in free trade discussions. This element carries immense weight and frequently serves as a pivotal aspect within such negotiations. Many free trade agreements contain clauses that offer exemptions or benefits if the goods can be traced back to their specific country of origin. These regulations usually pertain to the original definition of origins outlined in the respective free trade agreement.
7. Non-Tariff Barrier
Governments utilize various policies concerning import and export to enhance and safeguard their industrial competitiveness. Tariffs serve as a highly effective means, alongside non-tariff barriers, which encompass a range of government-implemented measures intended to restrict or regulate imports. These non-tariff barriers encompass import licensing procedures, subsidies, quota enforcement, and sanitary quarantine. Although these measures contradict the goals of organizations like the International Trade Organization and Inter-country Free Trade Agreement by impeding fair competition in free trade, there has been a steady rise in their use as trade barriers.
For individuals engaged in international trade operations, it is crucial to comprehend key tariff terms such as those mentioned above. Acquiring an understanding of these fundamental concepts enables one to identify customs policies and regulations while comprehending their underlying intentions. Ultimately, this knowledge empowers individuals to effectively plan for and manage international trade activities with precision.