MT220 Unit 4 Trade Policy Brief Example

Zero Duty, Nineteen Percent VAT and Six Documents: A Unit 4 Trade Policy Brief on Shipping a Roaster to Colombia

[Student Name]

Purdue University Global

MT220: Global Business

Unit 4 Trade Policy Brief

[Instructor Name]

[Date]

Cascade Drum Works, its components and the buyer are composite and illustrative; tariff, tax and document details are summarized from public sources and must be confirmed with a licensed customs broker before shipment; this brief is a course exercise, not legal or customs advice; the sources cited are real.

Memo

To: Owner, Cascade Drum Works From: MT220 student analyst Date: [date] Subject: What a roaster owes entering Colombia

Summary

A Cascade roaster should enter Colombia free of import duty under the United States-Colombia Trade Promotion Agreement, which entered into force in May 2012, provided its US origin is documented. The buyer will still pay Colombia's value-added tax of 19 percent at the border, calculated on the shipment's customs value, and the shipment must carry the documents listed in the appended checklist.

The Agreement and Its Tariff Schedule

The agreement eliminated tariffs on most US industrial goods entering Colombia immediately in 2012 and phased out the rest over ten years, so by now US-origin industrial machinery generally enters duty-free (International Trade Administration, 2024a). Without the agreement, machinery of this type would face Colombia's general tariff, which for many capital goods is in the single digits. On a [$41,000] machine, even a 5 percent tariff would add about [$2,000] to the buyer's cost, so the agreement gives Cascade a real price advantage over makers in countries without one.

Classification and Origin

Two questions decide whether the zero applies. The first is classification: the roaster must be assigned a tariff code under the Harmonized System, and the firm's customs broker should confirm the correct heading for an industrial coffee roasting machine before the first shipment. The second is origin. Duty-free treatment applies only to goods that qualify as originating under the agreement's rules, not simply to goods shipped from the United States.

Cascade's roaster contains two imported parts: a gas burner made in Italy and a control board assembled in China. The agreement's product-specific rules for machinery generally allow imported parts if the finished machine falls under a different tariff heading than those parts, a test known as a change in tariff classification. Because the drum, frame, cooling tray and assembly are made in Tacoma and the finished machine is classified differently from a burner or a circuit board, the roaster is likely to qualify. The firm should keep records showing where each part came from and what it cost, since Colombian customs can ask for proof.

Value-Added Tax at the Border

Zero duty does not mean zero cost. Colombia charges value-added tax of 19 percent on most imports, calculated on the customs value, which includes the price, freight and insurance to the Colombian port. For a [$41,000] roaster with about [$3,200] of ocean freight and insurance, the tax would be about [$8,400], paid by the importer before release. A farm or business registered for value-added tax may be able to recover it later against its own sales, but a small grower may not, and Cascade's quotes should say clearly that this tax is not included. Port handling, the customs agent's fee and inland trucking to the farm come on top, typically another [$1,500] to [$2,500] for a single crate.

The tariff line reads zero; the buyer's bank account will still see about eighty-four hundred dollars leave at the port.

Documents

Six documents are typically needed (International Trade Administration, 2024b). The commercial invoice states the price, terms and parties. The packing list describes the crate's contents and weight. The ocean bill of lading proves shipment. A certification of origin, prepared by the exporter, producer or importer, supports the claim for duty-free treatment under the agreement. The importer's customs declaration is filed in Colombia, usually by the buyer's customs agent. And the importer must hold a Colombian tax registration. Electrical equipment may also need to show conformity with Colombian technical rules, which the broker should confirm for the roaster's controls.

Recommendations

Cascade should engage a customs broker with Colombian experience before quoting, confirm the tariff classification and origin qualification in writing, prepare a certification of origin template, and state in every quote that prices are delivered to the port without Colombian value-added tax or local charges. Hill and Hult (2019) note that trade agreements lower formal barriers but leave administrative ones in place, and for a small exporter the paperwork is the barrier most likely to delay the first sale.

Appended Checklist

The checklist for each shipment is the commercial invoice, the packing list, the bill of lading, the certification of origin, the buyer's tax registration number and customs agent, and confirmation from the broker of the tariff code and any technical certificate.

References

Hill, C. W. L., & Hult, G. T. M. (2019). International business: Competing in the global marketplace (12th ed.). McGraw-Hill.

International Trade Administration. (2024a). Colombia country commercial guide: Trade agreements. https://www.trade.gov/country-commercial-guides/colombia-trade-agreements

International Trade Administration. (2024b). Colombia country commercial guide: Import requirements and documentation. https://www.trade.gov/country-commercial-guides/colombia-import-requirements-and-documentation