With the approach of U.S. Tax Day, we devote this post to discussing the true costs of doing business internationally. Particularly for traders in goods, these costs must be factored into business operations to protect the bottom line.
Tariffs: Just about every government collects import duties or tariffs on goods entering their country. Tariffs are collected at the country’s border, making them difficult to avoid. They are typically calculated as a percentage of the value of the good(s) being entered. For example, a duty of 5% ad valorem may be assessed on bicycles entering the country. Alternatively, the duty may be imposed as a specific amount per unit of good being entered. For example, a duty of one cent may be imposed on every litre of alcohol that enters the country. The cost of the tariffs paid on the goods should be incorporated into the sale price to reflect the true costs of doing business internationally.
Non-Tariff Barriers (NTBs): Goods exported to another market may face different standards and requirements than in the domestic market. The cost of preparing your goods to meet these new standards is an essential investment and must also be factored into the cost of doing business internationally. In addition, some countries will require that certain products obtain a license or permit to enter, another potential cost to be considered. Service providers may also be required to undergo the expense and delay of examination or re-certification.
Transportation Costs: A global pandemic and resulting disruptions to global supply chains have made us particularly aware of the costs of containerized shipping – in dollar value and time. Transportation costs are not the only factor driving today’s high prices. They are, however, an unavoidable cost of doing business internationally.
Transaction Costs: It pays to stay on top of the exchange rates for the currencies in which your goods are traded. What is the true cost of your product in Country X, in that currency and after taking into account the rate of exchange? Another essential transaction cost is the price of having your bank issue letters of credit to manage the exchange of goods and money. Whatever the cost, it is cheaper than not getting paid at all.
Time Delays: Each day that the product is in transit or sits in a port keeps it away from the customer, adding to the cost of doing business. Unlike tariffs or NTBs, however, it is not always possible to anticipate or to prepare for these costs. Yet, the costs associated with delays from extended customs inspections or inadequate number of unloading facilities or port personnel can significantly detract from your bottom line. Governments have become increasingly aware of these challenges and are moving to address them through trade facilitation measures. Companies can also rely on such experienced trade professionals as customs brokers, freight forwarders, and customs attorneys to minimize these delays and associated costs to trade in goods.
Contact us for solutions on minimizing the hassles and costs of doing business internationally.
- Trade Agreements signed among trade partners focus on reducing or eliminating tariffs. They may also negotiate streamlined standards so that a good that conforms to domestic requirements will also be accepted into the trade partner’s market. Several agreements also reduce the regulatory barriers that face service providers entering a new market. Doing business in the “right country” can significantly reduce the cost of doing business internationally.
- Minimizing tariff costs begin with the proper classification of your products. Skilled use of tariff schedules and rulings can be used to ensure that products pay zero or low tariffs at the border.
- Carefully crafted contracts contain provisions on payment and foreign exchange arrangements and allocation of risk from unforeseen events.
- Cost-effective compliance with regulatory requirements is also an essential solution. Some products or services are controlled for exports. Violation of export control and anti-bribery regulations can carry a stiff penalty and loss of export privileges.
I am a seasoned international trade and customs attorney, and policy adviser for various companies and governments with a demonstrated history of successfully developing and implementing sustainable and dynamic trade programs. I am experienced in creating partnerships with various business-support organizations to drive compliance and growth in the international market.