Duty

Duty refers to a type of tax or tariff imposed by a government on goods being imported or exported across international borders. Duties are usually levied to generate revenue for the government or to protect domestic industries by making foreign goods more expensive. The most common reference to “duty” in international trade is import duties, which are taxes placed on goods brought into a country from abroad.

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Types of Duties:

1. Import Duty:
• A tax levied on goods brought into a country.
• The buyer (importer) usually pays this duty to customs authorities to clear the goods for entry.
• Import duties can vary by product type, country of origin, and trade agreements in place.
2. Export Duty:
• A tax imposed on goods leaving a country, though this is less common than import duties.
• Some countries levy export duties on certain products, especially natural resources, to control supply or raise government revenue.
3. Customs Duty:
• A general term referring to any taxes imposed on goods crossing borders, including both import and export duties.

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Purpose of Duties in Export:

• Revenue Generation: Governments collect duties to increase state revenue.
• Protectionism: Import duties protect domestic industries by making imported goods more expensive, encouraging consumers to buy local products.
• Regulation: Duties can also be used to control the flow of certain goods, especially those that may impact health, safety, or national security.
• Trade Policy: Governments may impose or reduce duties depending on trade agreements or relationships with specific countries. For example, countries within free trade agreements like NAFTA or the EU may have reduced or zero duties between members.

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Example in Practice:

When a company in the United States imports goods from China, the U.S. government may impose an import duty on those goods, which the importer must pay before the goods can be cleared through customs and enter the U.S. market.

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Key Points:

• Duties add to the total cost of goods and may impact the price competitiveness of imported or exported products.
• The rates and application of duties vary depending on the country of origin, the type of goods, and the trade agreements in place between the exporting and importing countries.
• In Incoterms, responsibility for paying duties can vary based on the agreed terms, such as DDP (Delivered Duty Paid), where the seller pays, or DDU/DAP (Delivered Duty Unpaid), where the buyer pays.