In this discussion with Robert Bowman from Supply Chain Brain, Ginger Faulk, partner with the law firm of Eversheds Sutherland, describes the ways that international traders can offset the impact of new import tariffs imposed by the Trump administration.
Among a slew of executive orders by President Trump in the first weeks of his administration are new tariffs imposed on goods from Canada, Mexico and China. Trump has also proposed high tariffs on all steel and aluminum imports, regardless of country of origin, and has said he intends to take similar action against the automotive, pharmaceutical and semiconductor sectors.
All of those actions promise to raise prices and red tape for importers — especially if U.S. trading partners retaliate in kind. But Faulk says there are a number of steps that they can take to mitigate the impact of the new tariffs.
The practice of tariff engineering is one possible option. It involves minimizing a product’s exposure to tariffs by such actions as changing the country of origin, or replacing certain materials with those that enjoy more favorable treatment under the Harmonized Code of classification. In doing so, however, importers must make sure that they’re complying with requirements for “substantial transformation” of a manufactured item — they can’t just switch out the stated country of origin without making such changes. (They might also consider switching to sourcing from countries that have a free trade agreement with the U.S.) “That’s really crucial to avoiding penalties,” Faulk says.
Of course, manufacturers can’t change sourcing or product ingredients overnight; that’s a potential long-term solution to the tariff problem. More immediate actions include taking advantage of foreign trade zones, where imported goods can reside duty-free until they depart that secured facility; and duty drawback programs, which qualify the importer for duty refunds if they later re-export the goods in question.
Importers should also examine their contracts with suppliers to determine who is responsible for paying import duties, and whether there might be a “force majeure” provision that exempts them from duties altogether if they’re facing a massive change in pricing, Faulk says.
Source: Supply Chain Brain
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