What Are Preferential Duties?
Preferential duties are reduced or zero-rate tariffs applied to goods imported from certain countries under a free trade agreement (FTA) or preferential trade program. These lower duty rates are granted to promote trade between participating countries and encourage economic cooperation.
To qualify for preferential duties, imported goods must meet specific rules of origin and be accompanied by supporting documentation, such as a certificate of origin.
Common Examples of Preferential Trade Programs
- USMCA (formerly NAFTA) – United States, Mexico, and Canada
- GSP (Generalized System of Preferences) – Benefits developing countries
- EU Free Trade Agreements – With partners like South Korea, Canada, and Japan
- African Growth and Opportunity Act (AGOA) – U.S. program for eligible African nations
- CAFTA-DR – Central America and the Dominican Republic with the U.S.
Benefits of Preferential Duties
- Lower landed costs for importers
- Improved competitiveness for exporters
- Encourages sourcing from participating countries
- Promotes regional economic integration
Example in Practice
A U.S. company imports apparel from Honduras under CAFTA-DR. Since the goods meet the agreement’s rules of origin and include the correct documentation, the shipment qualifies for duty-free entry, saving the importer thousands in tariffs.
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