Customs Duty

Customs duty is a tax levied by a national customs authority on goods crossing an international border. The terms "customs duty," "import duty," and "tariff" are often used interchangeably. Customs duties are among the oldest forms of taxation — trade tariffs have been recorded since ancient Mesopotamia — and remain a major instrument of both fiscal policy and trade protection.

How Customs Duty Is Applied

Customs duty is calculated on the basis of three key variables: the tariff classification (HS code), the customs value of the goods, and the country of origin. From these three inputs, the applicable duty rate is determined and the payable duty calculated.

The equation is typically: Duty = Customs Value × Duty Rate

Where the customs value is usually the transaction value (invoice price) plus any adjustments required under the relevant country's customs valuation rules, and the duty rate is the rate specified in the national tariff schedule for the applicable HS code and origin combination.

Duty Rates and Trade Policy

Tariff rates vary enormously by product and country. Most WTO member countries maintain two tariff schedules:

MFN (Most Favored Nation) rate: The standard rate applied to imports from all WTO members. The US average MFN rate is approximately 3.3%, though agricultural products can exceed 20%.

Preferential rate: The reduced rate (often 0%) available to countries with which a free trade agreement is in effect. For US imports qualifying under USMCA (from Canada or Mexico), the preferential rate for most goods is 0%.

Column 2 rate: For imports from countries without MFN status (historically, non-WTO members). Much higher than MFN.

Value Added Tax and GST

Customs duty is distinct from VAT (Value Added Tax) or GST (Goods and Services Tax), though both are collected at the border for imports. In the EU, UK, Australia, Canada, and most other markets:

• Customs duty is applied to the CIF (Cost + Insurance + Freight) value of the goods
• VAT/GST is then applied to the duty-inclusive value (CIF + customs duty)

For a £1,000 shipment to the UK with 5% duty and 20% VAT:

• Duty: £1,000 × 5% = £50
• VAT: (£1,000 + £50) × 20% = £210
• Total tax: £260

De Minimis Thresholds

Most countries exempt low-value imports from customs duty (and sometimes VAT) under a "de minimis" rule:

• United States: $800 per shipment (the highest in the world; under review)
• European Union: €150 for customs duty (VAT applies above €0 since 2021)
• United Kingdom: £135 for customs duty
• China: CNY 50

The US de minimis threshold has been a major driver of direct-to-consumer Chinese e-commerce (Shein, Temu) shipping billions of individual packages below $800 duty-free. Legislative changes to reduce or eliminate Section 321 de minimis eligibility for Chinese goods were advancing through Congress as of 2024–2025.