Several recent and upcoming trade actions mean that importers must pay additional customs duties for imported components, raw materials and equipment. Additionally, Congress and the Biden administration have shown renewed interest in banning the import of products and their components made with forced labor. Manufacturers who may not see themselves as importers but in fact source globally need to increase the visibility of their supply chains and plan for possible customs detentions and consumer protection. US borders (customs) and the resulting increased costs.
This article will examine these costs and what importers can do to mitigate their duty exposure.
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Manufacturers planning for 2022 should keep in mind that many components, raw materials, and equipment are subject to additional customs duties when imported into the United States. Imported products are subject to general duties ranging from free to 32%. The general duty is based on the rate of duty and the value of the imported merchandise. In addition, the Trump administration has imposed additional tariffs, of 25% or 7.5%, on more than $350 billion in goods imported from China.
To date, the Biden administration has kept these functions in place. Specific products were subject to exclusions from these tariffs, but all exclusions except for certain personal protective equipment expired on December 31, 2020. The Biden administration may reinstate some of these exclusions. The U.S. Trade Representative is expected to make its announcement on this issue in the first quarter of 2022.
The main thing is that before importing goods from China, manufacturers should confirm whether the product is subject to additional duties, since 25% is quite onerous.
Steel, aluminum and certain steel products from most countries, with a few exceptions including Canada and Mexico, are also subject to additional duties of 25% and 10% on top of the general duty rate.
Manufacturers planning for 2022 should keep in mind that many components, raw materials, and equipment are subject to additional tariffs when imported into the United States.
These rights were imposed by the Trump administration and maintained by the Biden administration. The only exception is the recently negotiated change with the EU whereby a tariff quota system came into effect on January 1, 2022. The quotas are organized by product type and country of origin. Once the quotas are filled, importers will be subject to tariffs until the following year.
Steel and aluminum are also subject to numerous anti-dumping and countervailing orders, which can impose onerous duties well in excess of 100%. Solar cells and modules have also been subject to AD/CVD orders and significant additional tariffs since 2018 that continue under the current administration.
To alleviate the burden of general duties and additional tariffs, importers should consider the options available to them under current US law to mitigate the increased duty burden. If companies aren’t already doing this, now is the time to think long-term about creating efficiencies in the supply chain. Below is a list of supply chain triage opportunities:
• First sale: Customs duties are normally imposed on the sale between the importer and the intermediary seller; however, under “first sale”, importers may use the lower price from factory to middleman for valuation upon entry into the United States. The validity of the first sale is well established and supported by years of case law, which sets out the requirements.
The first sale can generally be used even if the seller is related to the importer and/or the factory, as long as purchase orders are negotiated “at arm’s length”.
First sale has been used for years in industries subject to high tariff rates, such as textiles and clothing. But as duties have increased on a variety of products, industries are exploring the possibility of saving duties with the first sale.
• Moving production: Moving all or part of the production out of China can make the country of origin a third country, potentially avoiding additional duties levied on Chinese products. Moving part or all of the production is neither simple nor inexpensive, but could be profitable in the long run.
Parts or components can always come from China and then be transferred to another country for further processing and assembly. This legally changes the country of origin.
Under “first sale”, importers can use the lower price from factory to middleman for valuation upon entry into the United States
• Identify deductions: determine if certain elements of the declared value at entry can legally be deducted to reduce the duties to be paid. The taxable value of imported goods is generally based on the transaction value of the goods entering the United States. When goods enter the United States duty-free or with a low rate of duty, some importers do not pay attention to the cost additions built into the price. imported goods. With proper sales structuring and record keeping, some of the foreign royalties that are components of the price are valid deductions from the transaction value on which royalty payments are determined.
Now may be the time for U.S. importers to consider the options available to them under current laws to reduce rising tariffs.
Although importing goods or their components made with forced labor has been a violation of U.S. law since the 1930s, the issue of forced labor has come to the fore in 2022. The U.S. government specifically referenced the construction industry as using forced labor in Xinjiang, China, in the production of its equipment.
In December, Congress voted unanimously to pass the Uyghur Forced Labor Prevention Law, and President Biden signed the bill into law. The law is the strongest legislation to date in response to forced labor in the supply chain of imported products, creating a “rebuttable presumption” that goods produced or manufactured in Xinjiang, or by certain entities, are made with forced labor and are prohibited from importation into the United States unless Customs determines with “clear and convincing evidence” that the products were not made with forced labor.
Customs and other government agencies have until the end of June 2022 to develop guidelines for importers on acceptable due diligence and evidence that the goods are not made with forced labor.
Sanctions may also now be imposed on any foreign person who knowingly engages in forced labor of Uyghurs and other predominantly Muslim ethnic groups in Xinjiang, and on any foreign person who knowingly engages in a violation of U.S. law regarding the importation of forced labor goods from Xinjiang. .
Customs and other government agencies have until the end of June 2022 to develop guidelines for importers on acceptable due diligence and evidence to prove goods are not made with forced labor
Even before the Uyghur Forced Labor Prevention Law came into effect, Customs had already significantly stepped up its crackdown on forced labor by issuing Restraint Release Orders (WROs) and increasing the number of detentions of imported shipments. In 2021, Customs had 53 active WROs and in the last three months of 2021 held 912 shipments due to the possibility that certain products or inputs were produced by forced labor. In June 2021, a WRO was issued for silica products manufactured by Hoshine Silicon Industry Co., Ltd., in Xinjiang.
Some manufacturers do not consider themselves importers, but in fact source their equipment and raw materials from all over the world. As a result, manufacturers or companies that source components from around the world must review global supply chains and operations and must address the issue of forced labor, review internal controls and ensure that all suppliers adhere to an effective code of conduct including forced labor provisions and modify customer agreements to protect against late or missed deliveries.
Importers can also prepare for the event that Customs will in fact determine that the importer has failed to prove that the goods were not made with forced labor and thus refuse entry of the goods into the United States. United. Purchase agreements should take into account the possibility that the merchandise may be held and who will bear the burden of additional holding costs.
If the importer chooses to submit documentation to customs in support of the shipment, the importer is responsible for warehouse charges, which will add up. Customs took up to four or five months to review and issue their decision. The documentation required is intensive and will require effort and resources to prepare a submission that may or may not secure the release of the detained goods. Customs does not publish statistics on successful submissions.
As 2022 begins, manufacturers should keep these two main business concerns in mind – the additional costs of rising tariffs and the enforcement of the import ban on products and components made with forced labor – to increase the likelihood of a smooth delivery of equipment, raw materials, and components with effective cost.