Duty
Duty is a tax imposed by governments on goods crossing international borders, calculated as a percentage of the goods' value (ad valorem) or as a fixed amount per unit (specific duty). Duties protect domestic industries, raise government revenue, and implement trade policy. For importers, duties significantly impact the total landed cost of internationally sourced goods.
Examples
Ad valorem duty: A component classified under a tariff code with 5% duty rate is valued at $100,000. The duty owed is $5,000, added to the goods' cost when calculating total landed cost.
Specific duty: Certain products incur duty based on quantity rather than value. A specific duty of $0.50 per kilogram on a 1,000 kg shipment equals $500 duty regardless of declared value.
Duty rate impact on sourcing: A category sourced internationally faces 15% duty. Comparing to domestic suppliers, the landed cost including duty may make domestic sourcing competitive despite higher unit prices.
Definition
Duty rates are determined by the Harmonized System (HS) classification code assigned to each product. Correct classification is essential: different codes carry different rates, and misclassification can result in penalties or missed savings opportunities.
Duty mitigation strategies include: free trade agreements that reduce or eliminate duties between member countries, foreign trade zones that defer or reduce duty obligations, duty drawback programs for goods that are re-exported, and first sale valuation that bases duty on an earlier transaction value.
Duty planning should be part of sourcing strategy for international purchases. Understanding duty implications helps compare suppliers across countries, evaluate trade agreement benefits, and structure supply chains to optimize duty costs.
Duty rates change based on trade policy decisions, creating uncertainty for international supply chains. Trade disputes and tariff actions can dramatically change the economics of established sourcing arrangements, requiring contingency planning.
Related Terms
Previous
*GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally, and COOL VENDORS is a registered trademark of Gartner, Inc. and/or its affiliates and are used herein with permission. All rights reserved. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.