Background

Developments over the last decade have made clear that a fundamental and dramatic shift in U.S. trade policy is fully underway. What began as an effort to rebalance trade with China has now evolved into a bipartisan consensus on the need to implement a more managed, domestically-oriented approach to trade around the world.

It will therefore be more important than ever for companies in the global supply chain to take active, intentional measures to avoid, mitigate, and/or recover the costs of increased tariffs, both those already in place and those anticipated to take effect in the near future. Sandler, Travis & Rosenberg’s experienced professionals can help your company devise and implement a tailored strategy to help you operate successfully in today’s turbulent trade environment.

For more information on any of the following strategies, please contact your ST&R professional.

Avoid

Classification engineering. U.S. Customs and Border Protection can only levy duties and tariffs on goods in their condition as imported. Importers in a variety of industries where high import duties prevail can 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 avoid 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 higher 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.

Origin engineering. If you cannot change the tariff classification of an imported product, it may be possible to modify 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 such operations to countries not subject to higher tariffs may thus be a viable way to avoid them. Unfortunately there rules differ by product, so each production step should be reviewed in detail to ensure that substantial transformation is actually taking place.

FTAs and preference programs. The U.S. has 14 free trade agreements encompassing major trading partners like Canada, Mexico, South Korea, and Australia as well as other countries and regions like Chile, Colombia, Morocco, Singapore, and Central America. FTAs eliminate duties on trade between the U.S. and partner countries, and FTA-eligible imports into the U.S. can benefit from an exemption from the merchandise processing fee. FTAs also lower a wide range of non-tariff barriers on goods and services trade between partner countries.

Additionally, preference programs like the Generalized System of Preferences (though congressional authorization for GSP has been lapsed for several years), the Caribbean Basin Initiative, the African Growth and Opportunity Act, and the Haiti HELP and HOPE acts allow unilateral duty-free and reduced duty treatment to imports from more than 100 developing countries. 

MTBs. Miscellaneous trade bills temporarily reduce or eliminate import tariffs on products not available in the U.S. and typically cover thousands of goods. The last MTB expired in December 2020, though lawmakers may seek to approve new legislation in the 119th Congress.

Low-value shipments. Section 321 of the Tariff Act of 1930 allows for the informal entry of articles that have a retail value of $800 or less and are imported by one person in one day. These de minimis shipments are free of duty and taxes and are subject to expedited clearance processing. However, U.S. Customs and Border Protection has proposed a number of changes to the regulations on de minimis entries and additional changes are expected in 2025, perhaps including congressional passage of reform legislation.

Exclusions. More than 150 products (listed in Annex C in this notice) remain eligible for exclusions from the existing Section 301 tariffs on China, and the Office of the U.S. Trade Representative is accepting through March 31, 2025, comments on potential exclusions for hundreds of specific subheadings under HTSUS Chapters 84 and 85 (more information is available here).

ST&R also continues to lead a coalition advocating before USTR and Congress to re-establish a broad exclusion process, renew 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.

Mitigate

First sale. First sale valuation has long proven useful to industries that have been subject to high import duties, as it allows duty to be paid on the price a middleman trading company pays the manufacturer instead of the higher price the importer pays the trading company. While tariffs still apply in this scenario, the dutiable value is often 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.

Valuation. Importers should 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 (see below) may be able to lower the dutiable value in related party transactions.

Trade remedy reviews. The U.S. maintains more than 700 antidumping and/or countervailing duty orders imposing substantial and even prohibitive duties on imports from dozens of countries. Annual administrative reviews of these orders that seek to update the information on which they are based, and ad hoc new shipper reviews of foreign companies not involved in an initial AD/CV proceeding, can be effective at obtaining lower duties. Importers can also request scope rulings and changed circumstances reviews that may result in the exclusion of specific goods from the coverage of an order and thus eliminate associated AD/CV duties.

Duty deferral. 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 subject to higher tariffs that may be withdrawn from the zone and exported out of the U.S. to avoid such tariffs. Goods otherwise subject to higher tariffs may be stored, manipulated, and/or subject to packaging or labeling operations in a bonded warehouse for up to five years to avoid those duties if they are (1) exported directly from the warehouse, (2) destroyed, or (3) entered for U.S. consumption once the tariffs have lapsed or a product-specific exclusion has been granted. Temporary importations under bond enable companies to avoid higher tariffs for products transiting or undergoing processing prior to exportation out of the U.S.

Recover

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. Additionally, there may be a possibility of refunds of duties paid on goods for which exclusions are in effect.

Transfer pricing. Transfer pricing represents the price one company (e.g., a parent) charges a related company (e.g., a subsidiary) for its goods and services. Retroactive transfer pricing adjustments are generally considered part of the customs value of previously imported goods and may need to be reported to CBP. In such cases, importers may need to tender additional duties to CBP if the adjustment increases the customs value of the imported goods, but they may also seek a refund for adjustments that decrease that value and thus the duties owed. However, certain procedures and processes need to be in place prior to adjusting such values to ensure compliance with CBP rules.

Reconciliation. Under CBP’s reconciliation program, importers may file entry summaries with the best available information and later file a reconciliation entry that provides the final and correct information upon which the entry is liquidated. Reconciliation is currently available for classification, value, HTSUS 9802 values, and FTA eligibility. If the reconciliation entry reflects a preferred classification, a lower dutiable value, or FTA eligibility, excess duties and tariffs deposited at entry may be refunded.

Post-entry procedures. Post-summary corrections (prior to entry liquidation) and protests (after liquidation) can be used to secure refunds when duty recovery opportunities are discovered after entry of the goods. If proper legal arguments and supporting information are submitted and applicable time frames are met, these mechanisms can yield substantial refunds.

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