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Companies Turn to Mitigation Strategies Due to Section 301 Tariffs

Mitigation is the reduction of something harmful or the reduction of its harmful effects. It may refer to measures taken to reduce the harmful effects of hazards that remain in potential, or to manage harmful incidents that have already occurred.

After a year in office the Biden administration has given no indication that it intends to lower or eliminate the Section 301 additional tariffs the United States continues to impose on hundreds of billions of dollars’ worth of imported goods from China.

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. A bit of flexibility and ingenuity can have a profound impact on a company’s bottom line when facing substantial duty exposure.

Exclusions. The Office of the United States Trade Representative has closed the comment period on extending hundreds of previously expired Section 301 tariff exclusions and a decision could come in the next few weeks. In the meantime, ST&R is pressing USTR for a full reopening of the exclusion process and a renewal of previously expired exclusions. For more information, or to become part of this effort, please contact us at strdc@strtrade.com.

In addition, importers can still join a court case challenging the Section 301 tariffs on List 3 and 4A goods from China and preserve their right to potential refunds of those tariffs. Contact attorneys Larry Ordet, Lenny Feldman, Rob DeCamp, or David Cohen at 301Litigation@strtrade.com to learn more.
Tariff Engineering. As much as United States 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 United States 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 United States 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 United States 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 once 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 examine 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.

Finally, importers should consider how the use of transfer pricing rules can lower dutiable value. Click here to learn more.

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 United States 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 United States 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 United States.

Section 321 De Minimis. CBP laws and regulations provide for a duty exemption for goods manifested at less than $800 fair retail value in the country of shipment if imported by one person on one day. CBP has confirmed that this exemption applies to Section 301 tariffs.

In assessing this opportunity, however, companies should carefully consider the accuracy of the information provided for such de minimis shipments to avoid cargo holds and possible seizures due to other government agency or intellectual property compliance issues. There is also a possibility that Congress may take action this year to limit the applicability of Section 321 to any goods subject to Section 301 tariffs or other trade remedy actions.

For more information, please contact Charles L. Crowley at (914) 433-6178 or ccrowley@strtrade.com or Robert D. DeCamp at rdecamp@strtrade.com or (212) 549-0141.

United States to Further Increase Tariffs, Impose More Sanctions on Russia

Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they may also be imposed for a variety of political, military, and social issues.

The United States is increasing import tariffs on hundreds of goods from Russia and imposing a number of additional sanctions against that country in response to its ongoing war against Ukraine.

For more information on the wide range of trade restrictions the United States has imposed on Russia and how to ensure your company is in compliance, please contact attorney Kristine Pirnia at (202) 730-4964 or via email.

Under an April 2022 law that revoked permanent normal trade relations status for (and thus increased tariffs on) imports from Russia, President Biden has issued an executive order that, effective July 27, will further increase to 35 percent United States import tariffs on more than 570 groups of goods from Russia.

The annex to the proclamation listing the affected goods by HTSUS number is available here, and the Office of the United States Trade Representative said it includes steel and aluminium; minerals, ores, and metals; chemicals; arms and ammunition; wood and paper products; aircraft and parts; and automotive parts.

The White House said the United States and other G-7 member countries will “seek authority to use revenues collected by new tariffs on Russian goods to help Ukraine and to ensure that Russia pays for the costs of its war.”

The United States is also prohibiting new imports of gold from Russia, which is the world’s second-largest producer and has gold as its second-biggest export behind energy.

Information from the United Kingdom, which along with other G-7 members is also imposing this ban, states that the ban will apply to “newly mined or refined gold” but not “Russian-origin gold previously exported from Russia.”

The White House pointed out that most of Russia’s gold exports go to the United Kingdom and that the United States imported less than $1 million in Russian gold in 2021.

Other measures the United States intends to take in the near future include the following:

  • adding companies “engaging in backfill activities in support of Russia” to the Entity List, which will prohibit those companies from purchasing United States-made goods and technologies;
  • imposing blocking sanctions against (1) major Russian state-owned defence enterprises, defence research organisations, and other defence-related entities and (2) persons tied to aiding Russia’s efforts to evade United States sanctions;
  • issuing an alert to financial institutions to aid in detecting potential violations of export controls.

For more information, please contact Charles L. Crowley at (914) 433-6178 or ccrowley@strtrade.com or Robert D. DeCamp at rdecamp@strtrade.com or (212) 549-0141.

United States to Ban Goods Made in Xinjiang China

Under a new law the United States will ban imports of all goods made in whole or in part from any good from the Xinjiang Uyghur Autonomous Region in China, effective June 21, 2022. Companies need to use the next 180 days to ensure their supply chains do not include such goods.

President Biden signed into law Dec. 23 the Uyghur Forced Labour Prevention Act, which effectively deems all goods mined, produced, or manufactured in the XUAR to be produced by forced labour in China. Even those not importing directly from China may have goods detained if the materials used to produce the imported goods in a second country are tied at any level to XUAR or specific entities or commodities associated with forced labour in China.

Under this law, imports of goods from the XUAR will be banned unless United States Customs and Border Protection determines that:

  1. the importer of record has fully complied with relevant guidance to be provided by CBP, as well as any regulations issued to implement that guidance;
  2. the importer has completely and substantively responded to all inquiries for information submitted by CBP to ascertain whether the goods were made wholly or in part with forced labour; and
  3. by clear and convincing evidence, the goods were not made wholly or in part by forced labour.

Any good from the XUAR that thus overcomes the rebuttable presumption of being made with forced labour will be included in a public list to be issued by CBP 30 days after making such determination.

Further, an interagency Forced Labour Enforcement Task Force will have to develop a strategy to prevent the importation of forced labour goods from China along with the following lists:

  1. entities in the XUAR that produce goods with forced labour
  2. entities working with the government of the XUAR to recruit, transport, transfer, harbour, or receive forced labour or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of the XUAR
  3. products made wholly or in part by such entities
  4. entities that exported products made with forced labour from China to the United States
  5. facilities and entities, including the Xinjiang Production and Construction Corps, that source material from the XUAR or persons working with the government of the XUAR or the XPCC for purposes of poverty alleviation program or pairing-assistance program or any other government labour scheme that uses forced labour

The Task Force must seek public input no later than Jan. 24, 2022, and the public will be given no less than 45 days to submit comments. A public hearing must be held within 45 days after the close of the public comment period.

The State Department must then submit a report to Congress by March 23, 2022, that provides a strategy to address forced labour in the XUAR along with lists of (1) entities in China or affiliates that use or benefit from forced labour in the XUAR and (2) foreign persons that acted as agents of such entities or affiliates to import goods into the United States The final strategy to be developed by the Task Force must be in place by June 21, 2022.

Importantly, the UFLPA calls for the Task Force to provide guidance to importers with respect to the following:

  1. due diligence, effective supply chain tracing, and supply chain management measures to ensure they do not import any goods made with forced labour from mainland China and especially from the XUAR
  2. the type, nature, and extent of evidence that demonstrates that goods originating in mainland China were not made wholly or in part in the XUAR
  3. the type, nature, and extent of evidence that demonstrates that goods originating mainland China, including goods detained or seized pursuant to Section 307, were not made wholly or in part with forced labour

Sandler, Travis & Rosenberg, P.A., has developed a program to help companies review their supply chain visibility. The STR program first provides a stocktaking of procedures, policies, and programs in place to evaluate the level of due diligence and reasonable care. Next is testing and tracking to review a shipment to determine if the procedures in place can timely provide the necessary documents to CBP to rebut a claim of forced labour. Finally, CBP will assist in responding to any CBP-issued detentions.

For more information on ST&R’s import compliance reviews and how they can benefit your company, please contact Charles L. Crowley at (914) 433-6178 ccrowley@strtrade.com.

Customs Attorney Charles Crowley

Customs Attorney Charles Crowley

Importers of Automotive Parts Save Major Duties and Taxes

There are a number of ways that vehicle and automotive parts companies can lower the duty that they pay for items imported into the United States.

While these strategies have been in existence for many years, the use of these strategies has grown tremendously in recent years given the increase in taxes imposed on various goods imported into the United States.

Tariff Classification and Engineering

Vehicle and automotive parts companies importing goods into the United States may be able to lower the duty that they pay for articles imported into the United States by changing the tariff classification that is used to enter these items.

This can be done lawfully when the tariff classification being used is found to be incorrect or when slight changes are made to the design and manufacture of the articles at issue.

For example, in a ruling issued by U.S. Customs and Border Protection in December of 2020, an importer successfully argued that its two-post vehicle lifts were classifiable as “Other lifting, handling, loading or unloading machinery” in heading 8528 of the tariff schedule as opposed to “Jacks hoists of a kind used for raising vehicles” in heading 8525.

CBP had previously ruled that the company’s lifts were classifiable as “jacks hoists” but overturned its decision after finding that the articles did not “pull a vehicle up using a hook and chain or a rope” and that they “raise vehicles more than a short distance”.

Additionally, in a ruling issued by CBP in May of 2017, an importer successfully argued that an oil cooler core was classifiable as a “part of heat exchange unit” in heading 8419 rather than as a “part of a motor vehicle” in heading 8708.

CBP looked to the section notes of the tariff schedule before finding that the importer was correct in its assessment that the oil cooler cores were classifiable as parts of heat exchange units. This change in tariff classification resulted in a 2.5% duty savings for the importer.

To help importers who may not have the bandwidth or know-how to fully engage in the classification process, Sandler Travis & Rosenberg, P.A. has professionals with extensive knowledge of the classification opportunities that exist for automotive parts and vehicles.

ST&R works with importers by reviewing their current classifications to ensure their correctness and by suggesting design changes to current products that may result in substantial duty savings.

Companies requiring expert assistance in identifying potential alternative classifications for the products that they import should contact ST&R. Charles “Chuck” Crowley can be reached at (914) 433-6178 and Mika M. McLafferty can be reached at (212) 549-0165.

Strategic Manufacturing

The assessment of duties on goods imported into the United States is dependent on a product’s country of origin as much as its classification.

The more recent implementation of additional duties of between 7.5% and 25% on certain goods that are Made in China has meant that the country of origin of products imported into the United States has become increasingly relevant.

Where vehicle and automotive parts companies are manufacturing a specific product in more than one country, ST&R can review manufacturing processes to determine the proper country of origin of that product. ST&R can advise companies as to what steps in the manufacturing process may confer origin to a product so that companies can strategically perform origin-conferring operations for a product in the country that provides the most favourable duty rate.

In the case of goods being produced in part in China, it is imperative that companies understand whether the operations being performed in China are origin-conferring such that the finished product may be subject to additional duties of between 7.5% and 25% upon importation into the United States.

As an example, CBP has recently analysed the proper country of origin of motors that were manufactured in multiple countries including China. Importers of those items were interested in understanding whether CBP would consider the country of origin of those motors to be China in which case additional duties of 25% would apply to the products at the time of importation.

As recently as May of 2021, CBP has issued rulings in which it has found that rotors and stators are the dominant components of finished electric motors and has found that the origin of a motor was determined by the origin of the rotor and stator cores.

Those interested in understanding how to strategically manufacture their product to avoid the potential assessment of Section 301 duties of between 7.5% and 25% should contact ST&R. Charles “Chuck” Crowley can be reached at (914) 433-6178 and Mika M. McLafferty can be reached at (212) 549-0165.