Trade Groups Call for Harmonization, Alignment of Tariff Schedules and FTAs, in Comments to ITC

Trade groups called for simplification of the tariff schedule and alignment of free trade agreements, in recent comments to the International Trade Commission. The complicated provisions of Chapter 64 create perverse incentives for shoe designers, the Footwear Distributors and Retailers of America (FDRA) said. Misaligned free trade agreements cause importers not to use trade programs, the American Apparel & Footwear Association (AAFA) said. And differences between how countries classify semiconductors creates a compliance burden for semiconductor importers, the Semiconductor Industry Association (SIA) said. The comments were submitted for an annual ITC report on import restraints (see 1610120051).

Chapter 64 of the tariff schedule, which covers footwear, is needlessly complicated and incentivizes manufacturers to design their shoes around duty rates instead of consumers’ needs, FDRA said. There are 436 different 10-digit tariff classifications for footwear in Chapter 64, which extends 46 pages in length. Canada’s Chapter 64 is only 13 pages long, and the EU’s is only six. “Ensuring full compliance for the classification of 2.5 billion pairs of shoes annually requires countless customs classification specialists and financial resources,” FDRA said.

The complicated provisions also incentivize manufacturers to design their shoes in ways that save on duties without benefiting the consumer. Tariff savings prompt manufacturers to avoid using non-plastic accessories such as metal or glass, or add an area at the rear of the shoe where the sole overlaps the upper, with the latter change causing some shoes’ rate of duty to fall from 37.5% to 12.5%, FDRA said. The requirements for one provision for women’s pumps, subheading 6404.20.40, can prompt manufacturers to increase the shoe’s weight by using a hollow heel and filling it with metal balls, nails or iron powder, FDRA said.

Restrictive rules of origin in free trade agreements also inhibit importers, AAFA said. “We believe greater care should be taken to ensure that FTAs are aligned and are able to connect with each other,” it said. For example, despite U.S. free trade agreements with both the Dominican Republic and South Korea, shoes made by U.S. companies in the Dominican Republic can’t be exported free of duty to South Korea. “More creative approaches are needed to ensure that FTAs are utilized more by the industry,” AAFA said. “Our members report that complicated rules of origin, combined with burdensome recordkeeping provisions, has discouraged many companies from using these programs.”

Misalignment across different countries of tariff provisions for semiconductors “creates real obstacles to the efficient movement of semiconductor products across borders,” SIA said in its comments. For example, “an IGBT module with a thermistor is classified under 8536.50 in the EU, 8541.29 in the U.S., Singapore and Japan, and 8504.40 in China and Korea,” it said. “Companies face the administrative burdens of parallel data administration and efforts to be compliant in different regions/countries. Harmonizing semiconductor classifications will greatly benefit semiconductor companies and customers by reducing administrative burdens and compliance risks, and lowering barriers between parties in the supply chain,” SIA said.

In the short term, an increase in Chinese tariffs for some semiconductors is causing disruption for semiconductor companies. When China implemented the worldwide switch to the 2017 version of the Harmonized System on Jan. 1, its method for calculating tariffs on new subheadings caused an increase in tariffs on certain semiconductors called MCOs. “This unexpected increase in tariffs for products that were previously duty-free … has already created significant confusion and concern for semiconductor companies, and if not quickly addressed by China Customs, could also result in major losses for U.S. companies,” SIA said.

Email ITTNews@warren-news.com for a copy of FDRA, AAFA or SIA comments.