Proven strategies to save on tariffs/customs duties
Consider the strategies and programs outlined here not just for merchandise with Section 232 and Section 301 tariffs (some options may be not be available for these tariffs), but for any imported merchandise that requires you to pay customs duties. Federal enforcement officials know that importers are trying desperately to find ways to avoid paying not only Section 232 and Section 301 tariffs, but also antidumping and countervailing duties and pretty much any other tariff. Please do not violate or skirt the law. The likely penalties and headaches far outweigh your duty savings.
Check your tariff classification numbers
How much you pay in tariffs/customs duties depends on the value of imported articles and on their tariff classification number under the Harmonized Tariff Schedule of the United States. But your imported items may be improperly classified or, more precisely, there may be other tariff classification numbers available that are as or more viable than the ones you are currently using and that may take you out of the reach of Section 232 or Section 301 tariffs. This is true even if you have been using the same tariff classification numbers for a long time and regardless of what CBP’s classification rulings say. You, your customs broker, and CBP could be wrong. Indeed, CBP regularly revokes rulings that are mistakenly viewed as ironclad precedents. Courts review CBP’s tariff classification cases de novo and give no deference to CBP’s rulings, which makes sense given the perfunctory nature and the lack of logic or detailed reasoning in most CBP classification rulings. If you are revisiting your tariff classification numbers, the exercise must be an honest one and should be directed by an experienced international trade attorney. You need someone who is able to figure out what is a reasonable challenge and to help guide you around traps, both the obvious and hidden.
Tariff engineering is perhaps the most overlooked option, even as it is often the option that often is the easiest to institute. It is often possible to change tariff classification numbers by simply manipulating your item before importing it. This is called tariff engineering. The ways to tariff engineer is limited only by your imagination, your willingness to tinker with production, assembly, and packaging. You can change tariff classification by combining your product with other items or by disassembling your product and shipping as components, for example. The U.S. Supreme Court has defended the right of importers to tariff engineer. You can't, however, perpetuate a fraud or artifice.
Change the country of origin
The Section 232 and 301 tariffs are based on the imported merchandise’s country of origin, not its country of export. Country of origin matters much more with Section 301 tariffs because they apply only to Chinese-origin goods. In contrast, Section 232 tariffs, with the exception of a few countries that are subject to quotas, are universal. Even if you switched country of origin, you’d probably still have to pay the Section 232 tariffs. Determining the country of origin is a complex, fluid thing, subject to interpretation and challenge. You may have to contend with dizzying methodologies (tariff shift vs. substantial transformation) that often depend on the presence of a free trade agreement. With Section 301 tariffs, it may be possible to shift some manufacturing and/or assembly to a country that is not China so that the final product is not deemed Chinese-origin and in a way that does not completely disrupt your current production and supply chain. The process is delicate and complicated and should be done with the assistance of experienced legal counsel.
International trade agreements
The USA is a party to international trade agreements (ITAs), also known as free trade agreements (FTAs). Some of these are bilateral, i.e., only between the USA and one other country, and some are multilateral involving multiple countries, e.g., NAFTA which now known as USMCA. ITAs generally provide both customs duty savings and investment opportunities and protections only for member countries and originating products. With unannounced and unanticipated renegotiations, ITAs are in chaos under the Trump Administration. It still makes sense to take advantage of any ITAs when you can, but you must monitor for legal developments.
International Trade Agreements are more relevant to Section 301 than to Section 232 tariffs. Section 232 tariffs are universal. Given their universal reach, the country of origin of your aluminum or steel products may not matter much. Absent a change tariff classification, you will still likely have to pay the Section 232 tariff or your imports will be subject to quota. In contrast, Section 301 tariffs apply only to Chinese-origin items. If you can legally prove, through further manufacturing or assembly in another country, that your product is no longer Chinese-origin, then you may be able to avoid paying Section 301 tariffs. Whether you are able to do this depends on the product’s country of origin (see discussion above).
Tariffs are assessed on the value of imported merchandise. The lower the value, the less you pay even as the tariff rate stays the same. For example, a 25% tariff on an item valued at $100 is $25, but if the item’s value was $50, then the tariff would be $12.50. For almost all shipments, you cannot and should not tweak the value. Fraud will get you into trouble. However, that rule may not be as stringent if you have a markup price. If you are buying from a trading company or a middle person, you may be able to declare a value on the first sale, i.e., what the trading company or middle person paid the manufacturer, instead on what you paid the trading company or middle person (the second sale), which is always higher. This is the First Sale Rule. The transactions must be arm’s length, which can be an issue if the parties are related.
DEDUCTING NON-DUTIABLE CHARGES. You may also be able to declare a lower value/price on your imported merchandise by deducting non-dutiable charges, like freight and insurance. Please remember there are regulations on when you can do this and how and you must follow those regulations.
Chapter 98 duty savings
Chapter 98 of the HTSUS provides a number of ways to import duty-free or greatly reduced duty rates. Most of the these methods are allowed for Section 232 and Section 301 tariffs. For example, 9801 and 9802 allow an importer to avoid customs duties in certain situations and upon meeting stringent procedures when exporting and then reimporting an item.
Consider renegotiating existing contracts or entering into new, better contracts to reduce your exposure to the tariffs. For example, you may wish to explore whether your foreign producer can reimburse you for the tariffs that you pay. The Trump Administration hasn’t addressed this possibility (this kind of reimbursement is not permitted with antidumping duties), but it may be worth investigating.
What if you could get a 99% refund of the customs duties/tariffs you paid on your imported merchandise? Drawback allows for such a refund when you either export or destroy the merchandise. Drawback has been greatly simplified in the past year.
Miscellaneous Tariff Bills (MTBs) allow temporary (three years) duty suspension on certain imported items when 1) there is no domestic production of or opposition to the product for which the tariff suspension is sought and 2) the cost to the U.S. government of suspending the tariff will not exceed $500,000 per year. MTBs do not reduce or suspend customs duties on finished goods, but on parts and inputs needed for the finished goods (e.g., chemical and foodstuffs). Petitions for duty suspensions or reductions may be filed only by members of the public who can demonstrate that they are a likely beneficiary of the duty suspension or reduction.
An MTB is not the same as an exclusion. An MTB will not get you out of paying Section 232 or 301 tariffs, but it can temporarily reduce the base tariff that you pay before Section 232 or 301 tariffs are applied. See, for example, HTSUS (2018) Revision 11, Chapter 99, Subchapter III at Notes 16(a)(i) and 19(a)(i).
Foreign-Trade Zones (FTZs) and bonded warehouses allow you to store your merchandise domestically (FTZs indefinitely and bonded warehouses for up to five years) while waiting for the Government’s decision on your exclusion request. FTZs allow you to tariff engineer (see above) imported merchandise within the FTZ, but unfortunately any tariff engineering done within an FTZ will probably not avoid or reduce Section 232 or Section 301 tariffs.
Temporary Importations under Bond (“TIB”) allow duty-free importation under certain conditions and for a limited time. The importer posts a bond for twice the amount of duty that would otherwise be owed on the importation. The importer agrees to export or destroy the merchandise within a specified time or pay liquidated damages, which are twice the normal duty. Only the items listed in subsections 9813.00.05 through 9813.00.75 of the HTSUS qualify for TIB. For example, under 9813.00.55, you can import free of duty a machine temporarily if you use that machine to exclusively manufacture items for export. You can also import goods duty-free items temporarily for repair, alteration, or processing under 9813.00.05.
A carnet is a passport maybe a visa for your goods, that is, for SOME of your goods. You don’t pay duties when you have a carnet, but the importation has to be temporary. You are required to export the goods and you have to present the goods to CBP. If you don’t, you pay liquidated damages. You may use carnets not only when visiting the US, but also 84 other countries. Carnets are solely for international business travelers. They are limited pretty much to what you can carry in your luggage, like commercial samples, professional equipment, and equipment that you use for exhibitions, seminars, and general showings. A carnet is good only for a year and only for those items specifically listed on the carnet. You can’t use a carnet to import goods that will be consumed in the country you are visiting. For more information, go to the United States Council for International Business.
Generalized system of preferences
The Generalized System of Preferences (GSP) provides duty-free treatment to goods of designated beneficiary countries and territories. GSP is not a trade agreement, but unilateral duty-free treatment by the US. The claim is that GSP promotes economic development in the target countries. Congress must periodically authorize GSP and there are quantitative limits. You can find more information under General Note 4(a) of the HTSUS.
China is not a GSP country and, thus, GSP is not available to Chinese-origin products. However, see the Country of Origin option, above. It may be possible to switch the country of origin from China to another country.
periodic monthly payment of duties
CBP allows importers, through the ACE portal, to consolidate the duties they owe and to pay them all at one time once a month. You don’t really save on duties, but if you are a volume importer, you keep your money for longer periods, thus there is the interest accumulated and it eases cash flow. This reduces both your and CBP’s overhead.