Embargoes and Tariffs: When Politics Prevents You From Running Your Business

Without a doubt, COVID-19 has drastically affected the world’s interconnectedness. Countries that were previously open to Americans and Canadians, like those in the EU, are now closed. China has completely closed its borders to almost every country. It’s difficult to know when things will be “normal” again.These border closures and travel restrictions were done in the name of preventing the virus from spreading, but it seems as though there is also a political component influencing who is allowed to travel and where. Alas, international politics often play a role in where you’re allowed to travel...and where you can ship things as well.For importers and exporters, it’s important to be aware of the embargoes that are in place for the country you’re based in. You also need to know about tariffs placed on certain products so you can know which products have the potential to earn a profit. Every country is different, so it’s wise to do your research in advance.

What is an embargo?

An embargo is essentially a ban on trade with another country. Powerful nations will often implement an embargo to try to force another country to act on a certain political issue. For example, the US and other countries enforced an embargo on South Africa in the 1980s to show their opposition to apartheid.There are several different types of embargoes. The most severe is a total ban of trade of any kind. Sometimes certain products such as food and medicine are excluded from the embargo. Another common type of embargo is an arms embargo, which prevents arms and related materials from reaching the targeted country.How can your import-export business be impacted by embargoes? The only way you will be affected is if there is an embargo in place between two of the countries in your supply chain. Check carefully to make sure no such embargo exists before creating your business plan.The most well-known embargo may be the US embargo on Cuba. It has been in force for almost 60 years. Under this sanction, Americans intending to import from Cuba or export to Cuba must obtain a special permit to do so. If you were planning on involving Cuba in your supply chain, you might need to reconsider.

Embargoes in the US and Canada

Canada and the US each have a list of countries they have an embargo on. As an importer or exporter, it’s best to avoid trade with these countries because of the need to obtain a special license.The US currently has a trade embargo on the following countries:

• Cuba
• Iran
• North Korea
• Syria

The US has other sanctions that involve restrictions on certain imports and exports and/or restricted transactions with certain parties in the following countries: Belarus, Burma, Burundi, Central African Republic, the Democratic Republic of the Congo, Hong Kong, Iraq, Lebanon, Libya, Mali, Nicaragua, Russia/Ukraine, Somalia, Sudan, South Sudan, Venezuela, Yemen, and Zimbabwe. If you plan to trade with a country on this list, further investigation will be needed to determine whether it is possible.Canada currently has a trade embargo on the following countries:

• Iran
• Libya
• Russia
• Somalia
• Syria

If you are based in a country that’s not the US or Canada, make sure you check if they have any embargoes in place.

What is a tariff?

A tariff is a tax that is placed on products that are imported from another country. Typically, a country chooses to implement a tariff in order to protect domestic industries. Let’s say it’s very cheap to produce curtains in India, and it’s expensive to make curtains in Canada (higher wages and benefits, more costly materials, etc). If Canada does not enforce a tariff on Indian curtains, most Canadians will choose to buy Indian curtains because they are cheaper. Canadian curtain manufacturers will likely go out of business. With a tariff on Indian curtains in place, Canadian curtains will be more likely to sell.While there are some benefits for the country that implements tariffs, it also can create tension and retaliation between the two countries in question. This is evident in the US-China Trade War. President Trump began by placing a high tariff on Chinese goods, and China responded by enforcing retaliatory tariffs. Both countries are suffering from this conflict.As an importer or exporter, you may need to pay tariffs on your shipments. Keep in mind that you may be required to pay other taxes and customs fees such as Goods and Services Tax (GST) for Canadian imports as well. It’s important to know in advance how much you owe so that you can create a thorough budget for your import-export business.

How to determine which tariff to pay

While you’re in the process of choosing which products to sell and where to find a supplier, investigate whether you need to pay tariffs on the products. If you find that the tariffs are exceptionally high on a certain product imported from a certain country, you may want to find a different product (or a supplier in a different country). Here’s how you can find out an estimate of what you might owe in tariffs.1. Locate the HS code that classifies your goodsThe first step is to look for the specific Harmonized System (HS) code for your goods. Most countries use HS codes to classify traded products throughout the import-export process. Your HS code will usually be six digits.You can use this HS Code Finder to determine your HS code. If you are exporting from the US, you need to find a Schedule B code for your product here. Schedule B codes are used only for exporting from the US; imports to the US typically use an HS code instead.2. Find out if there is a free trade agreement in the country you’re trading withFree trade agreements (FTAs) are an important aspect of international trade. When a country has an FTA with another country, tariffs are usually greatly reduced or nonexistent. FTAs also make the customs process easier by cutting away some of the red tape. One example of an FTA is the United States-Mexico-Canada Agreement (USMCA). This agreement allows trade between these three countries to transpire largely without tariffs.The US currently has FTAs with 20 countries. Check if you can benefit from one of these agreements. If you are importing to Canada or exporting from Canada, you can find all of Canada’s free trade agreements here. 3. Determine the tariff rate that applies to your goodsThe final part of the process is checking which tariff rate applies to your goods. Once you have the HS code or Schedule B code for your products, you can look up the applicable tariff rate.If you are importing to the US or exporting from the US and the country you’re trading with has an FTA with the US, utilize the International Trade Administration’s FTA Tariff Tool. If you are importing to Canada or exporting from Canada, you can find tariffs listed on the Canada Border Services Agency (CBSA) website. Navigating the ever-changing details of embargoes and tariffs can be challenging. You need an experienced partner who understands embargoes and knows how to calculate tariffs properly. That’s where BorderBuddy comes in. We’re equipped to help your import-export business succeed. Give us a call today.