Importers have taken a variety of measures in recent years to mitigate the impact of tariff increases, supply chain disruptions, and other trade-related challenges. However, there are increasing signs that U.S. Customs and Border Protection is ramping up its scrutiny of those measures, which could lead to investigations, audits, and even penalties. Importers should therefore take steps now to conduct their own evaluations to ensure they are protecting duty savings and acting in compliance with applicable laws and regulations.
In helping importers conduct such reviews, ST&R professionals have identified a number of common red flags. One is associated with efforts to relocate production from China to other countries to avoid the Section 301 tariffs the U.S. has levied on virtually all imports from China in recent years. Many times companies don’t or can’t move their entire supply chains out of China, so they seek to shift just enough manufacturing operations to other countries so origin is conferred there and the final product is no longer subject to tariffs on China-origin goods. However, in these instances the determination of origin is subject to complex substantial transformation rules that can be difficult to understand and apply. If the rules aren’t complied with, importers can become subject to not only the Section 301 tariffs they sought to avoid but civil penalties as well.
Similar problems can arise when sourcing changes are made to mitigate disruptions in supply chains that can result from labor shortages, production slowdowns, shipping snarls, and other issues. If the production of key components or the conduct of key processes is moved to other countries, it’s important to determine what impact that shift may have in terms of tariffs, quotas, sanctions, or other considerations. Likewise, any changes in Incoterms® between an importer and its supplier may have an immediate impact on what non-dutiable charges may be deducted from the declared value at the time of importation.
ST&R has also found other, more traditional problems in the context of these types of sourcing changes. For example, production changes can result in different product classifications, which determine duty rates. They may also result in parties taking on more or different roles in the supply chain, such as performing design or engineering functions, purchasing or providing raw materials or assists, or serving in more of an agency-type capacity, all of which have potential duty ramifications. Further, shipping goods from one country to another as part of a multinational production process could raise concerns about transshipment to avoid antidumping and countervailing duties.
These are just a few of the unintended issues that can arise from supply chain restructuring. Import compliance reviews can help companies identify potential vulnerabilities in these areas and implement processes and procedures to ensure they don’t turn into violations. If a review finds that there is a problem, the company can mitigate associated penalties by filing a prior disclosure before federal authorities get involved.
Import compliance reviews can also reveal savings opportunities, an important consideration any time but especially during a volatile economic climate. Regular reviews of your classification and valuation practices may highlight areas where you’re overpaying on import duties and refunds might be available. Reviews may also find that you’re paying antidumping or countervailing duties on goods no longer subject to them, or present an opportunity to request a scope ruling to get your products excluded. Equally important, reviews can bring together a company’s customs, tax, sourcing, and other groups to ensure that the practices of one aren’t causing compliance problems for another.
For more information on ST&R’s import compliance reviews and how they can benefit your company, please contact firstname.lastname@example.org or your ST&R professional.
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