If you’re thinking about expanding your business into new markets or finding cost efficiencies in international markets, you’re not alone.
Each year, hundreds of thousands of American businesses engage in international trade, importing almost $3 trillion worth of goods from foreign markets and exporting more than $2 trillion to them. What you may not know is that two of America’s biggest trading partners are Canada and Mexico – its neighbors to the north and south.
Many American businesses find cost efficiencies by purchasing product components from Canadian or Mexican companies and have them imported into the U.S. with the help of a U.S. customs broker. In other cases, American businesses find new sales markets in specific regions of Canada and/or Mexico, broadening their market base across the continent.
The goal of NAFTA is to reduce what trade experts refer to as landed cost, which is the total cost a business pays to ship an item across an international border. Landed costs include transport fees, customs fees, tariffs and numerous other cost inputs.
Administering NAFTA transactions
While NAFTA helps to reduce costs, it also demands a great deal of administrative rigor with respect to product classification. Products and their components must be correctly classified in order to take advantage of NAFTA’s cost savings.
The right U.S. customs broker can be a critical partner in helping you understand how to make the most strategic use of NAFTA, avoid administrative headaches and, most importantly, prevent costly audits and/or penalties.
NAFTA has 24 chapters, outlining every imaginable aspect of trade between the three participating countries. In addition, all goods that enter the U.S. are categorized according
to the Harmonized Tariff Schedule of the United States. Placing goods into the correct product category is called classification, and the number used to identify that category is referred to as a Harmonized Tariff Schedule (HTS) number.
The HTS number consists of 10 digits; the first six are used on the international level by World Trade Organization member countries, and the remaining four are U.S.-specific. The duty rate you are going to pay is determined by this number; customs duties are generally assessed at a percentage of the dutiable value of the imported goods. It is U.S. Customs who makes the final determination of the correct rate of duty to be paid by the importer.
Classification is a very complex process requiring knowledge of various rules and regulations that change often. Getting the classification wrong, or not paying the correct duty, could mean retroactive penalties for the importer. While it’s ultimately your responsibility to understand how various regulations apply to your business, a U.S. customs broker can help you classify your goods to minimize unnecessary and costly penalties and delays at the border.
Not just a broker
In some cases, a U.S. customs broker can help you identify opportunities to get more out of NAFTA by advising you to substitute certain components or materials for others that would allow for even greater reduction of tariffs.
In other cases, a U.S. customs broker might offer consulting services, which can help you better understand the Canadian and Mexican markets and the risks and opportunities associated with each. As your business grows, you may want to take advantage of global trade management, which can help you design the most efficient and cost-effective supply chain and manage the growing number of transactions and the administrative tasks associated with them.
If you’re thinking about branching out of the U.S. market and exploring opportunities in neighboring markets, be sure to consult with a U.S. customs broker to learn how to make the most of NAFTA and simplify the trade process.