Reclassifications Most Underused Strategy for Blunting Tariffs’ Impact, UPS Official Says
Reclassifying Chinese imports into Harmonized Tariff Schedule codes for goods not exposed to Section 301 tariffs is perhaps the least understood, most underused strategy that companies can try for minimizing the duties’ impact, a UPS executive said during an Oct. 3 webinar on high-tech supply chains. “If you’re not participating in what that classification process looks like, you’re taking a risk, I would say, at a minimum,” said Ron Shepherd, vice president at UPS Trade Management Services.
Savvy technology companies that are importing goods from China under HTS codes to which 301 tariffs have been applied will “want to validate those classifications and ensure that they’re correct,” Shepherd said. Doing so “minimizes the risk to you, but also helps you to understand, is the cost that you’re paying valid and accurate,” should the opportunity exist to reclassify goods into HTS codes not exposed to the tariffs, he said.
Reclassifications require the "expertise" of a customs and trade professional, Shepherd cautioned. “The folks that are doing the classifications for you may not fully understand all the nuances of what goes into that proper classification, and then how does it apply in terms of exposing you to risk.” Equally bad, he said, are practices that wrongly classify goods one thinks are not exposed to 301 tariffs when they actually are, or “unnecessarily” paying higher 301 duties for tariffed goods that belong in another nontariffed category.
Shephard gets reclassification questions from clients “over and over and over,” he said. His ready answer -- be sure “you’re working with an expert,” he said. “Those experts can ask all the right questions, and there are right questions to ask,” about where the product and its components were sourced and assembled and what is the product used for, he said. “All those different things go into trying to determine the right classification. From there, we can look at whether or not it applies to the 301 list or if there’s an opportunity to file an exemption or looking at a binding ruling for removing or coming in with a better classification.”
Even if one is “not feeling the effects of these tariffs immediately, you should definitely evaluate the long-term risks that these tariffs pose,” said Vignesh Anandan, UPS senior marketing manager-high tech segment. Raising pricing is the most common tariff response tech companies are considering, he said. “It’s an easy thing to do,” but “of course, it carries with it risk” because it “might lower demand,” he said. “If you have a unique product that gives you market power and you have a good understanding of the price sensitivity of your product, then this might be your best option. But considering how fragmented and competitive the high-tech industry is, I think it is a risk proposition.”
Diversifying one’s supplier base to source fewer products or components from China is another strategy for lowering tariff exposure, Anandan said. But a recent survey found that four out of five small businesses said they “either cannot switch their sourcing from China for another country, or could only do so with costly disruptions to their business,” he said. UPS already has seen “a few impacts” from the tariffs “here and there,” he said. “A lot of high-tech companies have stockpiled inventories ahead of the tariffs,” he said. “This has resulted in a lot of shortages and consequently higher lead times, especially in the capacitor market.” That’s an “important” trend that bears watching, he said.