Report considers prospective versus retrospective duties

A recent report by the International Trade Administration covers a topic of huge interest to the furniture industry: the value of prospective versus retrospective or retroactive duties.

Now anyone who imports bedroom from China knows what retroactive duties are, but for those who don't, here is a quick summary. Retroactive duties are imposed following the completion of what's called an administrative review. This annual review determines whether duties should be higher or lower than the initial cash deposit rate paid at the time the bedrooms are imported into the U.S.

For the importer, which is charged with paying duties on subject merchandise, retroactive duties create huge uncertainty and risk. That's because they make it extremely difficult to forecast what your costs of bedroom will be, particularly if final duties are assessed a year or two after the product has been imported.

For the petitioner or U.S. manufacturer that supports duties, the system helps determine if factories warrant a higher duty down the road. This threat provides the Chinese manufacturers an incentive to keep their pricing practices in check. Those that don't and continue to sell at prices below normal market values, face a higher duty. That, in turn, potentially makes them less competitive than some of their Chinese bedroom producing counterparts.

But the question is, which way is better? Is it a prospective duty system that assesses a fair duty rate up front? Some, including government officials, believe so, saying it could help avoid or minimize uncollected duties.

Proponents of the retroactive system say this would only create a different type of duty "undercollection" in that it would not allow the government to assess higher duties that may be warranted later on.

One thing is for sure. The retroactive system has helped shift much of China's bedroom production to other countries. For those that continue to purchase Chinese-made bedrooms, the risk of high retroactive duties continues.

What do you think?

To read about the issue in more detail, here's a link to the full report:

http://ia.ita.doc.gov/download/rvp/rvp-final-report-to-congress-20101119.pdf