Apparel Importers Not Making Good Use of Free Trade Agreements
Under 17 Percent Use FTAs and Pay the Highest Import Duties Going
Apparel and textile importers ought to expect a thank-you card from the United States government. That’s because they pay 42 percent of all import customs duties collected by Customs and Border Protection.
Twenty-one percent of all US importers trade in textiles and apparel, not necessarily exclusively, and pay the highest average rate of duty, at 16 percent, versus an average of two percent outside of the apparel and textile sectors.
“When you’re paying the highest rate of import duties, it’s in your interest to explore how to reduce those payments,” said Mary Jo Muoio, senior vice president of Geodis USA, at a program held last week at the Fashion Institute of Technology in New York, part of a series of events under the umbrella of the city’s World Trade Month.
Taking advantage of free trade agreements is one way to reduce import duties, yet under 17 percent textile and apparel imports come under the umbrella of FTAs, according to Muoio.
Of those that do come in under FTAs, CAFTA-DR and NAFTA are the most used, while agreements with Jordan and South Korea are used to a lesser extent.
For those imports that do enter under FTAs and are examined by CBP, the passing rate in 2016 was 34 percent. “That goes to show that there is enough homework to be done by the companies using these programs now,” said Muoio.
The Trump administration’s plans to renegotiate trade agreements like NAFTA could present some opportunities for apparel and textile importers, according to Muoio. “Some of the provisions of these agreements are not necessarily advantageous to US importers,” she said.
Examples include drawback—the possibility of receiving a duty refund if the imported products are ultimately exported, where current agreement restrict that practice. Another is the possibility of duty refunds after the fact, if the importer realizes that the shipments could have enjoyed the benefits of an FTA. “The way the agreements are written they can’t do that,” said Muoio.
Another opportunity to save money is to pay duty on a first-sale basis rather than on transaction value. Transaction value refers to the price actually paid by the importer. CBP rules allow importers, under certain specific circumstances, to declare the customs value as the first price paid by a middleman in a series of transactions. Ninety percent of apparel and textile imports into the US come in under transaction value.
Muoio has found that many of her clients pay more attention to customs classification of projects than to the declared value of the imports against which the import duties are paid.
“First sale takes a level of investment, perseverance, and record keeping,” said Muoio. “It also provides one more opportunity for CBP to look into your business.”
The same can be said of FTAs. Said Muoio: “Free trade is not free of work.”
Watch: The Future of Ports—2060