UPDATE as of Sep 12, 2022: The Office of the United States Trade Representative (USTR) confirmed on September 02, 2022, that Section 301 duties on lists one and two for goods from China will continue.
The process for reviewing the four year expiry date for Section 301 Duties associated with lists one and two began in May of this year. The USTR sent out a formal notice to domestic industries that benefited from the increased duties advising that the tariffs were set to expire unless requests for continuation were received. The USTR said that they received numerous requests for continuation and therefore the provisional duties for these lists, set forth under Section 301, will continue.
Section 301 of the Trade Act of 1974 allows the US Trade Representative (USTR) to investigate and increase tariffs or impose trade sanctions on countries whose trade practices are deemed discriminatory to US commerce. It reaches beyond the General Agreement on Tariffs and Trade (GATT), to give the US authority to penalize importers of foreign goods. This legislation allows the US to enforce their rights under bilateral or multilateral trade agreements.
The Goal of Section 301
The goal of this section is to strengthen US exports by negotiating settlements with foreign countries in the form of compensation or elimination of trade barriers. When activity within trade agreements favors one country over another, this section of the Trade Act can help the US level out those trade inequities.
Example of Dispute
A recent example of a USTR investigation is when tariff and trade sanctions were unilaterally imposed on China by President Trump in March 2018, with the goal to influence change in unfair trade practices and intellectual property theft. In short, the USTR determined that China was systematically investing and acquiring US companies and assets to obtain cutting-edge technologies and intellectual properties for themselves. The imposition of these increased tariffs and trade sanctions have since crippled US companies who source many of their products from China and provoked China to retaliate with sanctions of their own. “Rather than proceeding to a World Trade Organization dispute, the Trump administration announced it would impose 25% tariffs unilaterally on $50 billion of imports from China. China responded by indicating it would impose retaliatory tariffs on an equal value of US exports” (Source: Blandford & Tangermann, 2021, p. 143-144).
Effects of Section 301
You may be wondering when these changes will directly affect your business and if there are ways to mitigate the increases in tariffs. The good news is that not all businesses will be affected. For those that are seeing increased costs or supply chain issues with Chinese suppliers, for example, there are ways to help you and your business. To avoid negative effects, here is a list of easy to follow DOs and DON’Ts when planning on importing to the US, from China or otherwise:
- Perform your due diligence and reasonable care when importing to the US to ensure compliance. This can include taking a closer look at where exactly your products were manufactured, grown or produced to ensure you are using the right country of origin. If an audit were to ever take place, proving you were acting with reasonable care shows no malicious intent was planned and may reduce the severity of penalties.
- Consider closer, more local suppliers when sourcing your goods. With new trade agreements being signed and supply chains expanding in countries that are more local, you may want to consider sourcing your materials in countries with reduced duties, or where there is a Free Trade Agreement in place.
- Have intimate knowledge on the product you are looking to import. The more you know about the product you are looking to import, the better off you will be when trying to get it across the border. One small detail about a product could classify it under a tariff code that lowers the duty payable.
- Conduct better record keeping. With the increase of import audits happening in the US, it is imperative that you keep records of your due diligence and the ways in which you tried to classify the product to the best of your ability. These documents will be collected in the case of an audit and used to determine penalties against you.
- Use tariff engineering as a way to shelter yourself from higher duties and taxes. Tariff engineering refers to the design and manufacturing decisions taken by the importer to reduce the Customs duties they pay on imports into the country. However, a word of caution: Customs will likely find a way to extract those duties one way or another, making this strategy one that can jeopardize your relationship with US Customs and have you pay duties, taxes, and penalties on top of that.
- Make purchase decisions until you fully understand how importing the product will affect your supply chain and bottom line. There are still companies that are importing from China, for example, who understand the hoops involved from sourcing there and whose benefits still outweigh alternatives. You can risk having your goods stuck at the port of entry or even seized if you do not fully understand the import regulations.
Despite the challenges, there are companies still out there importing from nations affected by Section 301. To maximize your trade practice, we strongly recommend speaking with a Trade Advisor. If your company has been affected by these increases in tariffs or trade sanctions, a Trade Advisor can help your company with a tariff relief investigation, sourcing reviews and providing a full written report on the feasibility of the import. With their knowledge and experience, you can breathe easier knowing your import is in compliance with the US Customs and Border Protection.
To avoid audits or even additional tariffs, you may consider using PCB’s Trade Advisory services to ease the way you do business.