[author: Robert Silverman]
You don’t have to be much of a visionary to see the future with respect to importations of merchandise into the United States. President Trump has made it very clear that he plans to use tariff assessments as part of his foreign policy platform. Increased duties on imported goods have been threatened against Mexico and Canada to enlist them to strengthen their border crossing activities. We do not know whether those increased duties will be imposed.
Goods from China, however, are likely to feel the impact of increased tariffs. The President has a number of statutes that will enable him to put these tariffs in place (e.g. section 232 and section 301 of the tariff act). These programs have successfully supported the imposition of increased duties in the past, and they are likely to be used to impose higher tariffs. To put these tariffs into place, all the U.S. has to do is claim that China has not eliminated its prior trade abuses as a result of our prior tariff increases, or that some other threat exists, so more medicine has to be doled out. Importers need to be vigilant in the coming months and they should take advantage of their opportunities to eliminate or minimise duties that are surely in the offing:
1- Many of the tariff programs incorporate an opportunity to provide comments before they are implemented. In the past, these petitions have resulted in the exclusion of products from the additional tariffs that were imposed. You should also consider supplementing your petition for exclusion by also lobbying the administration as to the reasons that your products should not receive these additional tariffs.
2- Most duty rates are expressed as a percentage of dutiable value. If additional tariffs are imposed, then importers should review various options which might be able to reduce dutiable value. Our most successful program is the “first sale program” which permits dutiable value to be the factory price, which is lower than the prices charged by trading companies that are involved in the supply chain. This program has been sanctioned by the customs courts and can be achieved with the cooperation of the vendor and the right set of facts.
3- The new tariffs to be imposed will be identified based on the tariff classification that is used when the goods are imported, and they will likely be limited to goods that are made in specific countries. There are over 25,000 tariff provisions. We have found that as duties rise, importers are more interested in reviewing the tariff classifications of their products to see if they can find a pigeonhole that is not subjected to the new duties. Similarly, importers can shift production to factories that are not located in countries whose goods will be subjected to additional tariffs. In the last go round, many importers shifted sourcing to Mexico, Vietnam, Cambodia, and Malaysia to avoid the China tariffs. It is important to note that sometimes the entire manufacturing operation does not have to be shifted to a new country. However, it is critical to “substantially transform” raw materials or components in the new production country so that we can claim that the country of origin is the non-tariffed country.
4- Any new tariffs that will be imposed will have a starting date which will be tied to the “date of entry” of the shipments. As we get closer to these deadlines, it is incumbent on importers to try to get their entries filed before the hammer drops. The general rule is that the date of entry is the date that U.S. Customs releases the shipment. However, there are procedures to choose an earlier --when the goods enter the port with intent to unlade--- if the customs broker makes certain requests at the time of entry. Sometimes requesting the earlier date of entry can save huge amounts of customs duties.
So looking ahead to the future, we can see that additional tariffs are likely, but there are tools available to minimize the impact of these tariffs. The concepts discussed here are called “tariff engineering”. It has been established by over 100 years of court made law that holds that importers have a right to fashion their merchandise and/or arrange their business affairs to minimize duties. If the importer is transparent with U.S. customs as to what the product is and the import structure that has been implemented, then U.S. Customs will not harass the importer. In some instances, the importer can get a binding ruling from U.S. customs which ties down the tariff treatment of the shipments to come. This will take the guesswork out of the future.
The other subject that will be taking up large blocks of time in the U.S. import future relates to forced labor. In these cases, importers will be requested to prove that their products are not made in whole or in part of materials from Xinjian Province, in China (UFLPA program). It is not enough to be able to show that the product itself was not made in Xinjiang, but importers will have to be able to trace the materials back to their source to get goods cleared. In a related front, we can expect additional Withhold Release Orders on products from other countries where the vendors are believed to have used forced labor to produce goods. Agricultural products and seafood are high on this anticipated list. It is important to be on the lookout for WRO notices in this area. These problems are acute because when they hit, goods maybe excluded until you can prove that they were not made with forced labor.
Key Takeaways:
1. Tariff Programs & Exclusions: Importers should monitor tariff programs and submit comments or petitions for exclusion to minimize duties, especially with potential increases on goods from China. Lobbying the administration can also be beneficial.
2. Duty Reduction Strategies: Importers can reduce dutiable value through programs like the "first sale program," which uses factory prices instead of higher trading company prices, requiring vendor cooperation.
3. Tariff Classification & Sourcing Adjustments: Review product tariff classifications to avoid new duties, and consider shifting production to countries not facing tariffs, ensuring substantial transformation of materials to claim a non-tariffed country of origin.
