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Tariffs and manufacturing: Options available to manufacturers

Legal perspectives on tariffs and operating in the global marketplace


New tariffs have manufacturers scrambling to make changes in their supply chains and keep the costs of importing as low as possible. For many manufacturers, dealing with tariffs directly is terra incognita.

Lenny Feldman is a senior member of the law firm Sandler, Travis & Rosenberg, P.A., and co-chairs a federal advisory committee that provides strategic advice to U.S. Customs and Border Protection and the departments of Homeland Security and Treasury. He recently spoke with members of the RSM manufacturing team about tariffs, exemptions and the import options that companies may have. The following highlights of that conversation have been edited for clarity.

RSM: What can companies do when something like these unexpected tariffs come into play?

Lenny Feldman: You take a deep breath and assess your situation. A lot of companies may not have ever had to pay duties on their products because these were considered duty-free or unconditionally duty-free products.

Now that the tariffs hit, companies examine their data and start initially, proactively seeing what might stick out as a potential dutiable item under the new tariff. And that’s what leads to the art of the trade deal. What strategies work based on the data that importers initially have collected and reviewed?

RSM: What comes next?

LF: The first and foremost piece is really to start with the classification of the product. Is there another classification that could be used? That was working at first, because not all the products were covered under the section 301 tariffs. But now that we’re getting to a third or fourth list of tariffs, pretty much everything is being covered.

Meanwhile the Office of the United States Trade Representative is issuing product exclusions.  Some companies applied for these product exclusions successfully. But, by and large, I’d say 60% of them were not granted their exclusions.

RSM: Do you find that it’s common for companies leave the classification up to whatever third party is helping them import?

LF: Yes. They shouldn’t be doing that, because the importer has the responsibility to classify it properly. We’re finding that companies that never had to worry about it before are not really sure; they haven’t looked at their classifications before. And now, in fact, they’re taking a closer look.

RSM: Components and the finished products in the auto industry go back and forth across borders several times. If we’re talking about, say, a transmission, is that considered a finished product, or is the vehicle considered the finished product?

LF: It really depends on what you’re importing. If you are bringing in those spark plugs or transmissions or radiators, then we’re going to consider where the product was substantially transformed (or produced).  We are always looking at what is crossing over the border, that’s the snapshot in time, so to speak, which is critical. U.S. Customs and Border Protection will collect duties on what crosses the border.

There are ways that you can transit the merchandise over the border. Companies bring in merchandise from Asia to Florida, where I practice, to South America. And if they keep it in a bonded facility and export it out, they don’t have to pay any duties, because it’s not available for consumption. 

RSM: So it could come in but then leave to go on to another country?

LF: For example, consider auto parts companies that bring auto parts in to a bonded facility. Maybe they’ll have other orders that are initiated in the Caribbean or Central America or Latin America. So they export it out of the United States, no duty paid.

But then they might have customers somewhere in the United States who say they need those auto parts. So the company has to bring them in for consumption, and that’s where they may have to pay the duties.

Bonded facilities or transits provide a good opportunity for companies to avoid duties. If they know 50% of their products are going to end up in Latin America, and the rest is going to end up in the United States, companies should keep it in the bond warehouse until they know where everything’s going. Then you don’t have to pay duty on 100% of the products, just a portion of them. It’s really a good way to manage inventory.

RSM: What is the de minimis rule in section 321? How does it apply to imports?

LF: This is a very interesting opportunity for products coming from China. If it goes straight to the U.S. consumer and is less than $800, then you’re able to avoid paying the duty altogether. Let’s take the auto parts example: Say that you know that you’re going to have a lot of individuals who will buy auto parts on the internet because they’re fixing their own cars or they run some type of mechanic shop. What companies have been doing is stockpiling, if you will, inventory of Chinese goods, and placing them on the U.S.-Canada or U.S.-Mexico border.

When somebody purchases a part, the company will have it delivered directly to their business or to their house in a small package. Because it’s less than $800, you don’t pay duty on it, and it’s exempt from the typical China tariffs. This is distinct from bringing in a whole container load of those other parts, and having to pay the 25% duty on them because you’re over the $800 threshold.

If you have a robust e-commerce online business, this is a great way just to keep the goods over the border and then, as they’re ordered, just have them picked up and dropped off to your customers. 

RSM: Do you think manufacturing companies are finding strategies to deal with tariffs effectively?

LF: I think you have some who are being very effective. I think some are being effective in legitimate ways and, unfortunately, others who are trying to be effective in some shady ways. Some are just unaware of the legal parameters and think they’re in compliance, but if customs were to conduct an inquiry, they could have a big enforcement action on their hands.

RSM: So in the case of the ones who don’t really know, what should they be thinking about?

LF: They need to educate themselves. It’s no different than anything else. If you see that you are subject to the China tariffs, go to a professional who can walk you through the process and offer advice regarding your options.

RSM: Is enforcement up in this area?

LF: Enforcement was up before this. Whenever there are high duties, the stakes are high, and the government will focus its enforcement efforts towards making sure that they’re collecting all the revenue that they are legally obliged to collect. Customs has never been busier.

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