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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.

Duane Morris bolsters international trade capabilities

Geoffrey M. Goodale has joined Duane Morris LLP as a partner in the firm’s Corporate Practice Group in the Washington, D.C., office. The addition of Goodale enhances the firm’s international trade capabilities. Prior to joining Duane Morris, Goodale was a partner at FisherBroyles, LLP.

“Geoff is a key addition to our Corporate Practice Group,” said Matthew A. Taylor, CEO and Chairman of Duane Morris. “His extensive experience in the significant and always-evolving area of international trade is a crucial advantage for our global clients.”

“Geoff’s practice brings a key component of strength to our clients as they run their businesses in an increasingly interconnected world,” said Brian P. Kerwin, chair of the firm’s Corporate Practice Group. “His experience will be invaluable to our clients as they navigate the intricacies of a global supply chain.”

“We’re excited to have Geoff join us in Washington, D.C.,” said Patrick D. McPherson, managing partner of the Duane Morris Washington, D.C., office. “He will be a great addition to our office and the firm.”

For over 17 years, Goodale has assisted U.S. and non-U.S. entities of all sizes and in many industries in achieving their international business objectives in cost-effective ways. His practice focuses on export controls, economic sanctions, import compliance, trade litigation, international intellectual property rights protection, foreign direct investment, cybersecurity, anti-corruption, and government contracting matters.

Goodale counsels companies on a wide range of issues relating to the Export Administration Regulations (EAR) administered by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), the International Traffic in Arms Regulations (ITAR) enforced by the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC), and the economic sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). Additionally, he conducts internal investigations and audits to assess compliance in these areas.

Goodale also advises clients on all aspects of compliance with U.S. import laws and regulations, including those relating to determining the proper classification, valuation and country of origin of merchandise. He regularly represents clients in matters involving U.S. Customs and Border Protection (CBP), including assisting clients in preparing for and undergoing CBP audits. He also assists clients in developing duty-savings strategies through the effective use of duty drawback, foreign trade zones and subzones, preferential duty programs, and free trade agreements, including the North American Free Trade Agreement (NAFTA) and the Dominican Republic Central America-United States Free Trade Agreement (CAFTA-DR).

Goodale’s experience also includes representing both U.S. and non-U.S. companies in all manner of anti-dumping duty and countervailing duty cases before the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC), including investigations, administrative reviews, scope ruling requests and anti-circumvention proceedings, as well as in appeals of certain DOC and ITC decisions to the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit. He also has represented complainants and respondents in trade-related intellectual property rights cases filed with the ITC under Section 337 of the Tariff Act of 1930, as amended, and appeals of certain such decisions to the CAFC.

Additionally, Goodale possesses extensive experience in advising clients on international mergers and acquisitions. With respect to acquisitions by foreign entities of U.S. companies, this experience includes, among other things: taking actions necessary to clear proposed deals through the Committee on Foreign Investment in the United States (CFIUS); filing required submissions with DDTC and/or BIS when export-controlled products and technologies are involved; and structuring transactions so as to mitigate foreign ownership, control or influence (FOCI) in a way that is acceptable to the Defense Security Service (DSS) in order for the U.S. company to maintain its Facility Security Clearance (FCL).

Goodale also provides compliance counseling to government contractors on a wide range of matters covered by the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). In addition, he provides counseling to clients relating to the Foreign Corrupt Practices Act (FCPA) and conducts internal investigations to ensure that clients comply with the requirements of the FCPA and other anti-bribery laws, such as the UK Bribery Act.

A long-standing and active member of the American Bar Association (ABA), Goodale currently serves as co-chair of the ABA Section of International Law’s National Security Committee and vice-chair of the ABA Intellectual Property Law Section’s Business and Trade Division. He also currently is the chair of the Virginia State Bar’s International Practice Section and co-chair of the D.C. Bar’s International Trade Committee.

Goodale is a graduate of the George Washington University Law School (J.D., 2001), where he was a Dean’s Fellow and a notes editor for the American Intellectual Property Law Association Quarterly Journal. Prior to obtaining his J.D., Goodale obtained a M.A. in Government and a B.A. in Russian Studies and Government (with honors) from the College of William and Mary.

About Duane Morris

Duane Morris LLP provides innovative solutions to today’s multifaceted legal and business challenges through the collegial and collaborative culture of its more than 800 attorneys in offices across the United States and internationally. The firm represents a broad array of clients, spanning all major practices and industries.

How Overseas Export Growth Can Enhance Your Business

An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an exporter; the foreign buyer is an importer.

Expanding overseas can play a critical role in the prosperity of many mid-market companies, so it’s no surprise that 37% of businesses expect to increase exporting in the coming year.

And if companies are not considering overseas growth, they can be sure their competitors will be.

Breaking New Ground

One company that is already looking at exporting well beyond Europe’s shores is Norfolk-based Centurion, which has been making protective head gear, including helmets and face screens, since the nineteenth century. To safeguard its future, Chief Executive Officer Jeff Ward led the business through a total rebranding and restructure when he joined three years ago.

Despite being one of the leading players in its sector, Ward says Centurion lacked visibility and definition in the market. “We were too vague about our identity, about what made us stand out from our competitors. Starting from scratch and looking at every aspect of our business helped us focus our attention on who we were and on our goals – the most vital of which was expanding overseas.”

Achieving Overseas Growth

Ward worked with our advisers on several aspects of Centurion’s restart, including raising its profile locally, optimising its R&D tax relief and, more recently, overseas growth.

Over the past year, its international sales have grown by 30% – from £6 million to £9 million – and Ward expects this to continue in 2019, mainly in the Middle East and the United States, where the company has a new partnership.

Repositioning itself in both the domestic and international marketplace was key to Centurion’s recent growth. “Exposure, perception and connections are vital when you are trying to expand,” says Ward. “Grant Thornton elevated our profile, initially on a local level by showcasing our company and its success as one of the top 100 businesses in Norfolk, and then by advising on our overseas growth.

These are still early days, but I’m happy with the opportunities that are opening up. I’m excited about the partnerships we’ve established and hope that more will follow this year.”