Tariff Mitigation Strategies for U.S. Importers
David Trumbull's Comments at Techtextil
10:30, May 19, 2022, Atlanta, Georgia
Product Definition
The first thing is to define the product you will be importing, and the lesson here is that industry calls it and what U.S. Customs calls it is not necessarily the same.
U.S. industry largely uses the imperial system of weights and measures, the government used the metric system. In weaving it is common to use linear yards, often without stating the width -- Is it 54 inch wide linear yard? Is it 110 inch wide linear yard?
Industry and government textile terminology may differ. For example, many technical textiles are coated, but, does customs consider it coated? Customs definition of "coated" is over 200 words long.
"5903 Textile fabrics impregnated, coated, covered or laminated with plastics, other than those of heading 5902.
"Chapter 59 Note 2. Heading 5903 applies to:
"(a) Textile fabrics, impregnated, coated, covered or laminated with plastics, whatever the weight per square meter and whatever the nature of the plastic material (compact or cellular), other than:
"(1) Fabrics in which the impregnation, coating or covering cannot be seen with the naked eye (usually chapters 50 to 55, 58 or 60); for the purpose of this provision, no account should be taken of any resulting change of color;
"(2) Products which cannot, without fracturing, be bent manually around a cylinder of a diameter of 7 mm, at a temperature between 15 C and 30 C (usually chapter 39);
"(3) Products in which the textile fabric is either completely embedded in plastics or entirely coated or covered on both sides with such material, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of color (chapter 39);
"(4) Fabrics partially coated or partially covered with plastics and bearing designs resulting from these treatments (usually chapters 50 to 55, 58 or 60);
"(5) Plates, sheets or strip of cellular plastics, combined with textile fabric, where the textile fabric is present merely for reinforcing purposes (chapter 39); or
"(6) Textile products of heading 5811.
"(b) Fabrics made from yarn, strip or the like, impregnated, coated, covered or sheathed with plastics, of heading 5604."
Customs has repeated held that "The laminated fabrics of this heading (5903) should not be confused with fabrics which are simply assembled in layers by means of a plastic adhesive. These fabrics, which have no plastic showing in cross-section, generally fall in Chapters 50 to 55." NOTE, it need not be visible on the face or the back, as long as it is visible in cross-section.
Case study
A fabricator of tents to protect bicycles imported fabric coated to make it waterproof. The coating was opaque and obscured the fabric which caused it to be classified under heading 5903 with no, or low, import duty. The vendor changed the formulation to make the coating clear. The import didn't care, because it remained waterproof. Customs ruled that because the coating "cannot be seen with the naked eye" it was ineligible for heading 5903 and was classified according to the base fabric, which had a significant import duty. He came to me after the fact. There was nothing to do. Talk to a an import specialist before making decisions.
Tariff Classification
Goods traded internationally are classified using the international Harmonized System. Every article is classified according 4-digit heading and 6-digit subheading. This means that we can track the flow of goods, at the 6-digit level without needing to understand the language of the description. To the internationally-harmonized 6-digits, the U.S. further classifies articles to ten digits. As the coated textile example demonstrates, classification can be complex and difficult. This not a do it yourself project!
Case study
An importer had the correct classification, but was not aware that they can change. The international system is revised every five years and U.S. one more frequently. His classification changed, but he kept on using the old one, which was subject the 25% China duty. Another case where he came to me after the fact. I could have gotten him refunds but deadline for changing his filing had passed. I recommend a periodic review of your entire import program.
Tariff Mitigation
In some cases, there are legal ways to lower tariff costs.
Case Studies
Foreign-Trade Zone
A company imports fiber in the form of tow and pays 7.5% duty. In the U.S. he cuts the tow to make flock, which is duty-free. We set his plant up as a Foreign-Trade Zone through a process with the Department of Commerce and Customs. Now when the tow enters his facility it is not considered to have entered the customs territory of the U.S. It is not, for Customs purposes, considered to be an import until the flock leaves the zone, with no duty. An FTZ can also provide some tariff savings for warehousing and distribution facilities.
Miscellaneous Tarff Bill
If no one in the U.S. makes what you import you can petition through the U.S. International Trade Committee to have the duty temporarily suspended. If the ITC agrees, your article is placed on a huge list that is sent to congress for a vote. There are some limits to using the MTB. Any opposition will get your request denied, a non-appealable decision, however, sometimes one can work with the objector and get the objection removed, if the final decision has not been made. Sometime the request can be tweaked to remove objection. In some cases the objector did not understand the government description is of a product other than his (back to industry vs government nomenclature). There is a once every three years window for submitting requests. There is expectation that they will open that window this fall. I assisted a company importing a specialized glass fiber for wind turbine blades to get relief through the MTB process. This case had an added layer. He described the fiber and gave me the tariff classification. I said that the classification did not match his description. He sent me a sample and I could tell from a naked eye inspection that he had the wrong classification. He was equally certain he was right. So, I sent the sample to Customs for a binding ruling which confirmed my opinion. He had relied on the classification provided by the exporter. Recall that classification is harmonized to 6-digits. At the 10-digit level the U.S. and German had a different classification.
Generalized System of Preferences
The U.S., unilaterally, grants tariff concessions to some of the poorest nations. Most textile articles are excluded, but GSP may be helpful in the case of some technical textiles. A textile coating facility imports polytetrafluoroethylene ("PTFE") resin from India. Normally it has 5.8% import duty. He gets it duty free because India has GSP. PTFE from India is subject to substantial antidumping duty, however, because of the way the article is described in the AD order, the version he imports is exempt. Again, terminology!
Free Trade Agreements and Preference Programs
The U.S. have 20 free trade agreements with 14 nations that provide duty free treatment provided the goods satisfy the rules of the origin of the particular agreement. We also have Preference Programs with several nations in the Caribbean region and Sub-Saharan Africa.
Tariff Engineering and Country of Origin Engineering
Importers of certain boxes coated with textiles face 6.3% tariff it is cotton and 17.6% if it is a man-made fiber. They prefer MMF, but get the lower rate buy using a cotton/MMF blend. However, they got in trouble when they got too precise in the blend, making it 51% cotton and 49% MMF. Due to the inherent variances in the manufacturing process and in testing, when Customs had samples tested, they came back with slightly more MMF than cotton. Related is country of origin engineering. A company was importing from China an article with several components and was paying the 25% China tariff. I got Customs to agree that if one critical component was sourced from Vietnam, all the other components could be sourced from China and final assembly stayed in China, the article was a product of China.
This brings up another topic, risky supply chains. After he moved some of the production to Vietnam the U.S. investigation of Vietnam which could have lead to imposition of the China tariff on Vietnam. At the last minute, Vietnam settled the case. It shows that when considering sourcing you need to assess ALL the potential risks.
