The Trump Administration’s aim of remaking global trade is fully underway. White House officials describe their new approach as “bold, creative and disruptive.” Over the past year, we have witnessed the imposition of tariffs not only against imports from China but also against steel and aluminum from our traditional allies (Canada, Mexico, the European Union (EU) and Japan) based upon national security grounds. At the same time, Customs & Border Protection (CBP) is asking more questions at the border about what exactly is being imported, where it comes from and how much it costs. For CBP, details matter. CBP is also focusing on goods that might be covered by anti-dumping or countervailing (AD/CVD) duties. CBP inquiries come in the form of a Request for Information (Customs Form 28).
Our trading partners have not taken the imposition of tariffs against their countries lightly and have imposed retaliatory tariffs. This has led to the tit-for-tat trade war, regularly covered by mainstream press, which affects not only U.S. importers but U.S. exporters.
At the same time, the Administration has modified the Korea-U.S. Free Trade Agreement (KORUS) and finalized the renegotiation of NAFTA (now called the United States-Mexico-Canada Agreement (USMCA)). USMCA has yet to be approved by the U.S. Congress, a necessary step for the agreement to become the law of the land. The Administration has also notified Congress of its intent under Trade Promotion Authority (TPA) to negotiate agreements with Japan, the EU and the United Kingdom. It is certainly welcome news that the Administration intends to negotiate market access opening agreements.
So how does this affect your business?
- Tariffs and Quotas: If you import goods or are a U.S. manufacturer that purchases imported goods you may be facing higher costs because of hefty tariffs of as much as 25%. If you are an exporter, you might find yourself facing unexpected tariffs in the country you are exporting to. Farmers have been hit especially hard by retaliation.
- Steel and Aluminum Tariffs
On March 8, 2018, the President issued two proclamations, under his authority under the Trade Expansion Act of 1962 to protect the national security, on steel and aluminum products, imposing tariffs in the amount of 25% and 10% respectively. The tariffs continue for steel products for all countries except for Argentina, Brazil and South Korea (covered by quotas) and for aluminum products for all countries except for Argentina (covered by quotas). Australia is not covered by either tariffs or quotas. For the time being, the tariffs remain for Canada and Mexico even though USMCA has been renegotiated. There is a product exclusion process administered by the U.S. Department of Commerce Bureau of Industry & Security (BIS).
There are other national security investigations pending that could lead to more tariffs, most notably regarding automobiles and auto parts, but also on uranium and titanium sponge.
- Tariffs on Chinese Imports
As a result of an investigation under Section 301 of the Trade Act of 1974 into China’s unfair trade policies and practices primarily relating to intellectual property and forced technology transfers, tariffs on $50 billion worth of goods are subject to a 25% ad valorem duty. A third tranche of goods in the amount of $200 billion are now subject to a 10% ad valorem duty. Whether the duties on the $200 billion will be increased to 25% depends upon the ongoing negotiations between China and the U.S. Product exclusions were considered for the first two tranches totaling $50 billion and the process for those imports is now closed. At the current time, there is no process for product exclusion for the $200 billion despite pressure by some in Congress.
- Steel and Aluminum Tariffs
- More enforcement by CBP at the border
CBP is charged with enforcement of these policies and collection of the revenue. As a result, you may be getting more questions about what you are importing, where it comes from and how much it costs. CBP might also ask questions regarding compliance with other U.S. government agency requirements, such as CPSC, FCC, USDA, FDA. These are often complicated questions resting on customs and other government agency laws. If you get a Form 28, it is likely that CBP thinks that there has been a mistake, or even worse – an intentional deception – in the importation of the imported product. Companies receiving such inquiries are well-advised to consult with an experienced customs attorney. There are a variety of ways of mitigating penalties, which the customs attorney can advise on. CBP may even be mistaken in its belief that there has been an infraction.
So what are some of the ways to mitigate the pain of these trade policies and increased enforcement at the border?
- Examine your supply chains and make changes if possible.
- Review your tariff classifications.
- Make sure you are declaring the correct country of origin for your product. Value chains are complicated but so are rules of origin.
- Review how your international transactions are structured. You may be able to take advantage of a lower value by use of the “first sale” rule. This is complicated.
- Make sure your product really qualifies for any preferential tariff treatment claimed under free trade agreements or preferential programs, such as GSP, AGOA etc.
- There is a fine line between “tariff engineering” and what can be considered customs fraud so great care must be taken in making these changes which often also trigger questions by CBP.
- For steel and aluminum tariffs, there is a product exclusion process. Take advantage of it.
- The steel and aluminum tariffs are being challenged in court and at the World Trade Organization. Learn how you can preserve your rights in the event these challenges are successful.
- In the future, there may be a product exclusion process for the third tranche of $200 billion worth of Chinese imports imposed under Section 301.
- Avoid surprises that cost money. Make sure your product is not subject to an AD/CVD order.
- Ask for a scope ruling if you think your product is wrongfully caught by an AD/CVD order.
- Evaluate the use of duty deferral programs (FTZ’s, bonded warehouse, duty drawback, TIBs).
- For the future consider contract terms that allow adjustments for unexpected costs as a result of sudden increases in tariffs.
- Consider what to do if your competitor is not paying the extra duties.
- Keep your Congressional delegation informed as to the impact of these policies on your business.
- Last but not least, stay informed. In the past year, there have been many costly changes but there have also been opportunities to mitigate such costs.