Importers hit hard by the Section 301 tariffs for China origin goods have rightfully taken steps to mitigate their exposure to these tariffs. Legal options to avoid the tariffs include changing supply chains in order to purchase products from countries other than China or importing a modified or further finished product that would not be covered by the tariffs. Sometimes a product can be altered or further processed resulting in classification under a different HTS, one that does not fall under the 301 tariffs. This is referred to as tariff engineering, changing the applicable classification by changing the product. This is perhaps the best option to legally avoid the tariffs. When making a change of this type, an importer should consult their broker or Customs attorney. Applying for a binding ruling is recommended. Changing classifications without converting the product into another item not allowed. This is termed as tariff avoidance and can create expensive legal headaches for the importer.
Customs is reviewing products that have experienced a change in classification, origin, or value that affects the collection of the additional Section 301 tariffs. They have also been questioning importers who have exhibited a decrease in these tariffs. The common first step is for Customs to send out a request for information, Form 28. This form asks for detailed information about the product, the production of the product (including the source of materials and production records), and the purchase records. The product details are used to establish the correct classification of the item being imported while the production and purchase records are used to establish the correct country of origin. In some cases, Customs can issue an audit letter indicating you will be getting a visit from Customs to review the issues. Should you receive an notice of this type it would wise to contact your broker or a Customs attorney to discuss the situation. Should Customs determine that the classification, origin, or reported value is incorrect the importer could face penalties on top of the unpaid duties to be collected.
If you have made changes to any products to mitigate your exposure to the 301 tariffs, we recommend that you keep information of what steps were taken. The same would be true for any changes in supply chain. You must be aware when buying from a supplier outside China that their products are produced outside of China; the 301 tariffs are applied based on the country of manufacture, not the country of exportation.
Sam McClure, LCB
Director of Compliance & Customs Services
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Meet one of CVI’s Customs Brokerage & Compliance experts, Sam McClure:
Sam serves as Director, Compliance and Customs Services for CVI. He serves as CVI’s corporate compliance officer and is responsible for overseeing all aspects of our Customs related services, including growth.
Sam started his career in 1977 with Waters Shipping Company in Charlotte, NC. He began as a document runner, soon becoming a leader in operations and customer service for the branch. Sam, along with Linda Masten, founded Central Carolina Shipping Inc. in 1983 as an independent Customs Brokerage firm where he served as Vice President for 26 years. Sam and Linda grew Central Carolina into a successful and highly respected member of the Carolinas trade community. When Charlotte opened their local chapter of the IFFCBA Sam was part of the organizing group and he headed the Customs committee for several years. Sam obtained his Customs Brokers License in 1984 and remained with Central Carolina until the company was acquired by CVI in 2009.
At CVI, Sam has held several positions in both the operations and sales departments. As an expert in U.S. Customs regulations, Sam is often called upon on to provide guidance to importers on Customs compliance issues. He makes regular presentations on matters related to importation and broader regulatory compliance.
– Sam McClure, LCB, Director of Compliance & Customs Services, CVI
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