The Biden administration appears to have no intention of eliminating Section 301 tariffs on imports from China, and former president Donald Trump is threatening to more than double those tariffs and impose a 10 percent duty on all U.S. imports if he is elected this November. However, there are a number of proven and legitimate ways for importers, exporters, and manufacturers to effectively escape or limit the impact of these tariffs.
The Office of the U.S. Trade Representative has been conducting a review of the China tariffs for nearly 18 months. While USTR Katherine Tai has been promising to conclude that review for quite some time, it remains unclear when that might happen. In the meantime, Tai has defended the tariffs as having “strategic value” by helping to diversify production away from China and promote the Biden administration’s “worker-focused” trade policy, which suggests that any changes resulting from the review will be minimal.
In addition, Trump, the presumed Republican nominee for president, has indicated that as part of an effort to reduce or eliminate the U.S. trade deficit with China he would further increase tariffs on imports from that country. He has also promoted the idea of seeking to further open foreign markets to U.S. exports by imposing a universal U.S. import tariff and/or raising U.S. tariffs on imports from individual countries to match those they levy on U.S. goods.
While these developments pose significant actual or potential costs to U.S. importers, utilizing the following methods can help mitigate that threat.
Exclusions. There are nearly 400 Section 301 tariff exclusions in effect. They are currently scheduled to expire May 31, but they have been renewed multiple times and USTR is considering whether further extensions are warranted.
However, there is currently no process open that would allow for the reinstatement of previously expired extensions or petitions for new ones. ST&R continues to press USTR and allies in Congress to re-establish the exclusion process, renew previously expired exclusions, and provide for retroactive application of those exclusions. For more information, or to become part of this effort, please contact strdc@strtrade.com.
Refunds. A lawsuit first filed in 2020 and since joined by thousands of importers argues that the Section 301 tariffs on List 3 and List 4A goods from China were wrongly imposed. In March 2023 the Court of International Trade ruled in favor of the federal government, leaving the tariffs in place for now. The case is currently before the Court of Appeals for the Federal Circuit, which could render a decision this year.
Importers of List 3 and 4A goods from China can still preserve their rights to possible refunds of tariffs paid on such goods by joining this case. For more information, or assistance filing a claim, please contact us at 301Litigation@strtrade.com.
Tariff Engineering. As much as U.S. Customs and Border Protection has resisted the idea in the past, the courts have continually affirmed that CBP can only levy tariffs on goods in their condition as imported. This has led importers in a variety of industries where high duties prevail to import products in unfinished or embellished forms to legally take advantage of classification provisions carrying a lower or free rate of duty. For instance, components imported separately may fall into an entirely different tariff provision than the finished product and may thus be excluded from a higher tariff.
Further, classification concepts are particularly useful for certain U.S. or other products that fall within the special HTSUS Chapter 98 provisions, many of which may enable importers to partially or fully avoid Section 301 tariffs. These provisions cover numerous types of products used for specific purposes as well as specific production or sourcing scenarios involving U.S. or previously imported components.
Operational Engineering. If you cannot modify the tariff classification of an imported product, explore changing its country of origin. For instance, CBP has found that the complex assembly of numerous parts, modules, or subassemblies into dedicated machines results in a substantial transformation of the components so that their country of origin is where the finished product was produced. Shifting operations away from China to another country may thus enable you to escape the higher duties.
Valuation. First sale valuation has long proven useful to industries that have been subject to high duties. Here duty is paid on the price a trading company pays the manufacturer instead of the higher price the importer pays the trading company. While additional tariffs still apply in this scenario, the dutiable value is significantly lower, resulting in a lower duty bill.
Various criteria must be met to ensure the first sale price reflects a sale that is clearly destined to the U.S. and conducted at arm’s length, but, once validated, a viable first sale value can provide substantial duty savings. It can also serve as a type of long-term annuity; i.e., even if the Section 301 tariffs expire, use of first sale valuation would continue to provide a lower declared value and thus reduce the regular duties assessed on a company’s products.
Importers should also consider (1) whether certain amounts typically included in the price, such as buying commissions, shipping-related charges, inspection fees, and post-importation assembly charges, can be excluded from dutiable value, and (2) how the use of transfer pricing rules can lower dutiable value.
For more information on these issues, please contact Mark Segrist or Mark Tallo.
Bonded Facilities and Movements. For those companies involved in manufacturing as well as import for export trade, bonded facilities provide a safe haven from the Section 301 tariffs. Goods admitted to a foreign-trade zone in privileged foreign status retain their character and tariff classification as admitted even if they are manufactured into a product affected by the tariffs that may be withdrawn from the zone and exported out of the U.S. to avoid the tariffs. In addition, goods otherwise subject to the tariffs could be entered and stored in a bonded warehouse for up to five years to avoid those duties if they are (1) exported directly from the warehouse or (2) entered for U.S. consumption once the tariffs have lapsed or a product-specific exclusion has been granted. Temporary importation bonds and bonded movements also enable companies to avoid tariffs for products transiting or undergoing processing prior to exportation out of the U.S.
For more information on any of these strategies, please contact attorney Lenny Feldman at (305) 894-1011 or via email.
Copyright © 2024 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.