Background

Exclusions from the Section 301 additional tariffs on imports from China for 99 medical care products needed to address the COVID-19 pandemic will expire March 31. President Biden has indicated that these and other Section 301 tariffs will remain in effect for the foreseeable future.  Importers of affected products should therefore consider the following possible steps to mitigate the impact of the tariffs.

Shipping Dates

Importers may want to ship subject goods so they are entered into the U.S. prior to March 31 if possible. It should be noted, however, that doing so for goods shipped by sea is becoming increasingly challenging. There are currently dozens of container vessels waiting to unload at the ports of Los Angeles and Long Beach, where a surge in imports and a reduction in available labor due to COVID-related issues has resulted in severe congestion. As a result, newly-arriving ships may have to dock outside port limits, which would prevent importers from making formal entry for goods on those ships. Importers may therefore want to consider shipping to other U.S. ports or moving their goods via air cargo.

Exclusion Process

Affected companies may wish to urge members of Congress and the Biden administration to permanently extend existing tariff exclusions and reinstate the exclusion process. They may find support for this effort in a recent report from the International Trade Commission, which found that U.S. producers of COVID-19-related goods faced challenges in ramping up production to meet growing demand and that imports increased substantially as a result. For more information on this effort, please contact Nicole Bivens Collinson at (202) 730-4956.

Refund Litigation

Sandler, Travis & Rosenberg has filed cases with the Court of International Trade arguing that Section 301 tariffs on China List 3 and List 4A goods were imposed in violation of the authority provided under the Trade Act of 1974 and the Administrative Procedures Act. If this litigation is successful, refunds of all Section 301 tariffs paid on List 3 and List 4A goods, regardless of whether an exclusion was previously available or filed, will potentially become available. Importers can still preserve their rights to such refunds by filing their own complaint in the CIT. For more information, or assistance filing your claim, please contact Larry Ordet, Lenny Feldman, Rob DeCamp, or David Cohen at 301Litigation@strtrade.com.

First Sale Rule

Under the first sale rule, the dutiable value of a qualifying transaction may be based on the purchase price between the middleman/vendor and the manufacturer rather than the price paid by the importer to the middleman/vendor. While additional tariffs still apply, the dutiable value is significantly lower, resulting in a lower duty bill.

For more information, including on ST&R’s proprietary First Sale Portal that can aid importers in substantiating claims, please contact Mark Segrist or Mark Tallo. Click here to access ST&R’s webinar on achieving duty reductions through first sale.

Tariff Engineering

U.S. courts have continually affirmed that U.S. Customs and Border Protection can only levy tariffs on goods in their condition as imported. Importers of goods subject to high tariffs may therefore import products in unfinished or embellished forms, or make relatively modest modifications to their goods that move them from tariff classification to another, to legally take advantage of classification provisions carrying a lower or free rate of duty. Click here to register for ST&R’s upcoming webinar on this method.

Operational Engineering

If the tariff classification of an imported product cannot be changed, its country of origin could be. 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. As a result, shifting certain operations away from China could avoid the Section 301 tariffs.

Bonded Facilities

Goods admitted to a foreign-trade zone in privileged foreign status will retain their character and tariff classification as admitted even if they are manufactured into a product affected by the Section 301 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 additional 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.

Copyright © 2021 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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