Tariffs, trade & compliance

A tariff is a tax on goods crossing a border, and it lands directly in landed cost. If a component costs ₹100 from Country A and ₹110 from Country B, a 15% duty on Country A’s goods flips the answer: ₹115 against ₹110. Tariffs can change quickly with politics, so they’re both a cost and a risk.

Three ideas sit underneath:

• Classification: every product has an HS code, an international numbering system for traded goods, which decides its duty rate. A wrong code means wrong duty, penalties or seized goods.
• Origin: where a product “comes from” for duty purposes, set by rules of origin, decides whether it gets lower duty under a free trade agreement. Assembling in a partner country doesn’t always make it count as originating there.
• Valuation: duty is charged on the customs value, so freight, insurance and some royalties may be included.

Supply chain teams use this in two ways:

1. Design: model tariffs in network and sourcing decisions, test scenarios (“what if duty on this category rises 10%?”) and diversify, as many companies have done with a “China plus one” strategy.
2. Comply: classify correctly, keep origin documents, check export controls and sanctions lists, and use legitimate schemes such as duty drawback, where duty paid on imported inputs is refunded when the finished goods are exported.

Trade rules are complex and change often, so companies rely on trade compliance specialists and customs brokers, and planners need to know when to involve them.

Duty on an import, step by step

Rates differ by HS code and change with budgets and notifications, so the exact rates must come from the current tariff.

What free trade agreements change

If the component qualifies as originating in a country with a free trade agreement, BCD may be reduced or zero, saving the ₹110 in the example. To qualify, it must meet that agreement’s rules of origin, often a minimum share of regional value content combined with a change in tariff classification, and the importer must hold a valid certificate of origin and be able to prove it.

Schemes that reduce duty legally

• Duty drawback: refunds duty paid on inputs used in exported goods.
• RoDTEP: remission of embedded duties and taxes on exported products.
• Advance Authorisation: duty-free import of inputs used to make exports.
• Special economic zones and export-oriented units: duty-free operations for export production.
• Customs bonded warehouses: store imported goods and pay duty only when they are cleared for the domestic market.

Planning with duties

Duties belong in every landed-cost comparison and network model. Testing scenarios (“what if BCD on this category rises by 10 points?” or “what if an FTA gives this source zero duty?”) shows which decisions are sensitive to trade policy.

Trade policy is volatile

Tariffs can change within months as governments respond to trade disputes, domestic industry pressure or security concerns. The tariff rounds between the US and China from 2018, and broader US tariff changes since, reshaped sourcing decisions worldwide. Companies respond with scenarios, diversified sources (“China plus one”), contract clauses that share duty changes, and the ability to move production between countries.

Export controls and sanctions

Some goods and technologies need licences to export because they could have military uses (dual-use items). India controls these through its SCOMET list, and other countries have their own regimes. Sanctions prohibit dealings with certain countries, companies or people. Screening customers, suppliers and shipments against denied-party lists is a standard compliance step, and violations carry severe penalties.

Anti-dumping and safeguard duties

When imports are priced unfairly low or surge suddenly and harm domestic industry, governments can impose extra duties after an investigation. In India, the Directorate General of Trade Remedies (DGTR) recommends anti-dumping, countervailing and safeguard measures. These duties can be large and specific to a country or even a producer, so they must be checked in sourcing decisions.

Trusted-trader status

Customs authorities offer faster clearance and fewer inspections to companies with proven compliance and secure supply chains. India’s Authorised Economic Operator (AEO) programme is an example, and mutual recognition agreements extend benefits in partner countries. Gaining it requires strong internal controls, which also reduce compliance risk.

Tariff engineering versus evasion

Designing a product legitimately so it falls under a different classification with lower duty (tariff engineering) is lawful when the product genuinely meets the new classification. Misdeclaring the classification, value or origin of the same product to pay less is evasion, with penalties, seizures and reputational damage. Origin fraud, such as routing goods through a third country with minimal processing, is a particular enforcement focus.