Trade intelligence fundamentals
Import duties and tariffs explained — from HS codes to landed cost.
Every import is subject to duty. Understanding how that duty is calculated — and how to legally minimise it — can determine whether a trade corridor is profitable. This guide covers everything from the basics to FTA optimisation.
How import duty is calculated
Every import duty calculation requires exactly three inputs: the HS code, the customs value, and the applicable rate.
HS Code
The Harmonised System code classifies your product and determines which duty rate applies. An incorrect classification can mean paying the wrong rate — higher or lower than the legal obligation.
Customs value
Usually the CIF value — cost of goods plus insurance plus freight to the port of destination. If you trade on FOB terms, the importer adds insurance and freight to derive CIF.
Duty rate
The applicable rate from the destination country's tariff schedule. May be MFN (standard), preferential (FTA), or a combination with ADD, CVD or safeguard duties on top.
Worked example
Laptop (HS 8471.30), customs value $1,000, imported China → US
MFN rates: the WTO baseline
The Most Favoured Nation (MFN) rate is the standard duty applied to imports from any WTO member country in the absence of a preferential trade agreement. With 164 WTO members, MFN rates cover the vast majority of global trade. Every country's MFN schedule is published and legally binding — you can look up any rate for any HS code in any country. MFN is the starting point. Everything else — FTA preferences, anti-dumping, safeguards — is a modification of the MFN baseline.
The six types of import duty
Not all duties work the same way. The type of duty determines how it is calculated and what triggers it.
Ad valorem
A percentage of the customs value of the goods.
TV worth $500, 5% rate → $25 duty
Common on: Most goods in most countries
Specific
A fixed monetary amount per unit of quantity (weight, volume, number of items).
$0.68/kg of sugar regardless of price
Common on: Agricultural goods, alcoholic beverages, tobacco
Compound
A combination of ad valorem and specific duties applied simultaneously.
Footwear: 20% of value + $0.90/pair
Common on: Footwear, certain textiles and agricultural products
Anti-dumping (ADD)
An additional duty on goods exported below normal value (dumping). Applied on top of MFN rate.
Chinese steel: MFN 3% + ADD 62.5% = 65.5% total
Common on: Steel, aluminium, chemicals, consumer goods — varies by country and product
Countervailing (CVD)
A duty to offset government subsidies in the exporting country. Applied on top of MFN rate.
Subsidised solar panels: MFN 2.5% + CVD 15% = 17.5%
Common on: Any product where foreign subsidy is proven — commonly solar, steel, agriculture
Safeguard
A temporary duty imposed when a surge in imports threatens domestic industry.
US washing machines: 20% safeguard duty for 3 years
Common on: Typically short-term, any sector facing import surge — politically driven
Free trade agreements and preferential rates
An FTA creates a preferential tariff rate — often 0% — between member countries. To benefit, your goods must satisfy the “rules of origin” requirement: a minimum level of production or transformation must occur within an FTA member country.
FTA in practice
Brake pads (HS 8708.30) imported into the US
From Mexico (USMCA qualifying)
0%
From China (MFN)
2.5%
From China (+ Section 301)
27.5%
| Agreement | Members | Key notes |
|---|---|---|
| USMCA | US, Canada, Mexico | Replaces NAFTA. Duty-free for qualifying goods. Automotive rules of origin require 75% regional value. |
| EU Single Market | 27 EU member states | Zero duties on all intra-EU trade. Common External Tariff (CET) applies to imports from outside the EU. |
| RCEP | 15 Asia-Pacific nations incl. China, Japan, ASEAN | World's largest FTA by trade volume. Gradual tariff elimination over 10-20 years depending on product. |
| CPTPP | 11 Pacific nations incl. Japan, Canada, Australia, Vietnam | High-standard agreement. Eliminates tariffs on 95%+ of goods. UK acceded in 2023. |
| AfCFTA | 54 African Union member states | Aims to eliminate 97% of tariff lines. Phased implementation — check current schedules by member state. |
| UK-EU TCA | UK and EU | Zero tariffs on qualifying goods with UK or EU origin. Rules of origin require substantial transformation within the TCA area. |
Beyond duties: the full landed cost
Import duty is only part of the landed cost. A complete landed cost calculation must also include:
VAT / GST on import
Applied on the duty-inclusive customs value. UK: 20%. EU standard: varies 17-27%. Australia: 10% GST. US: no federal VAT.
Customs processing fee
US: Merchandise Processing Fee (MPF) — 0.3464% of value, min $31.67. EU: no equivalent but broker fees apply.
Harbor Maintenance Fee (US)
0.125% of cargo value on sea freight imports into US. Paid by importer.
Excise duties
Additional consumption taxes on alcohol, tobacco, fuel, and certain goods. Applied at import by many countries.
Frequently asked questions
How is an import duty calculated?
An import duty is calculated from three inputs: (1) the HS code, which determines the applicable duty rate; (2) the customs value, which is typically the CIF value of the goods (cost + insurance + freight to the port of destination); and (3) the duty rate itself, expressed as a percentage of the customs value (ad valorem) or as a fixed amount per unit. The duty payable equals the customs value multiplied by the ad valorem rate, plus any specific duty per unit where applicable.
What is an MFN tariff rate?
MFN stands for Most Favoured Nation. The MFN rate is the standard import duty rate that WTO member countries apply to goods from all other WTO members unless a preferential trade agreement (FTA) provides a lower rate. With 164 WTO members, MFN rates apply to the vast majority of world trade. The MFN rate is the baseline — the starting point before FTA preferences or additional duties (anti-dumping, safeguards) are applied.
What is the difference between ad valorem and specific duties?
Ad valorem duties are expressed as a percentage of the customs value of the goods — for example, 5% of the CIF value. They rise and fall with the price of the goods. Specific duties are expressed as a fixed monetary amount per unit of quantity — for example, $0.68 per kilogram of sugar. Specific duties do not change with the price of the goods. Compound duties combine both: a percentage rate plus a fixed amount per unit.
What is an anti-dumping duty?
An anti-dumping duty (ADD) is an additional import tariff imposed on specific goods from specific countries where those goods are found to be exported at prices below their normal value (i.e., below the domestic price in the exporting country or below the cost of production). ADDs are on top of the standard MFN rate and can be very high — commonly 20-200%. They are product- and origin-specific: the same HS code imported from a different country will not be subject to the ADD.
How do free trade agreements reduce import duties?
Free trade agreements (FTAs) create preferential tariff rates between member countries — typically 0% for qualifying goods. To benefit from an FTA rate, the goods must meet the 'rules of origin' requirements specified in the agreement. Rules of origin define how much of the product's content or transformation must occur within an FTA member country to qualify. Documentation requirements (typically a certificate of origin or exporter's declaration) must also be met at the time of import.
What is a landed cost?
The landed cost is the total cost of getting a product to its destination country, including: the cost of the goods (ex-works or FOB), international freight and insurance, import duty, VAT or GST applied on import, customs processing fees, and any other import-related charges (e.g., the US Harbor Maintenance Fee). Landed cost is the correct denominator for margin calculations — not just the purchase price of the goods.
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