Customs Brokers Getting Lots of Questions About How to Mitigate or Avoid Section 301 Duties, Muoio Says

NEW YORK -- Clients are asking "how can I make a bad situation better," said Mary Jo Muoio, senior vice president for trade services for Geodis, a customs broker firm. Muoio, who was speaking on a panel on "Tackling the Trade War: Solutions for Companies Across the Supply Chain" at the Apparel Importers Trade and Transportation Conference, said some of those client questions and plans are not sophisticated. She quoted one client who asked: "If I send it to Taiwan and label it Taiwan, does it get me out of the 301?" She quipped, "Well, it gets you in jail."

A lot of people think "shipping via Mexico magically gets you out of [Section] 301" tariffs, she said Nov. 7. But unless the product is substantively transformed during its stay in Mexico, that track does nothing to mitigate the tariffs, which could climb to 25 percent on Jan. 1, 2019.

That's not to say there aren't legitimate strategies to deal with Section 301 tariffs, Muoio said. She said clients can move purchases out of China. They can correct a classification into a classification that's not subject to the additional tariffs. She said companies should ask themselves: "Can I redesign a product? Can I underdesign a product? Can I overdesign a product? Can I create a set for retail sale where the tariff that prevails is not on the list? Can I move complete production out of China? Can I move partial production out of China?"

Muoio said many of these tactics are possible, but companies and their brokers should expect heightened scrutiny from CBP, with questions like "Why did you change origins so quickly? Why did you change classification?"

With regard to beating the Jan. 1 deadline, Muoio suggested that if inventory is in a foreign-trade zone, change the status now. She said there's still a small opportunity to get the goods here before the end of the year, but cautioned "just because the ship gets here in December doesn't necessarily mean you're not going to pay the 25 percent." She said certain declarations must be made in time to get the shipment processed by CBP in December. Not just that, but CBP has rejected shipments because companies don't have enough bond coverage. "They are rejecting very large bonds for $100" insufficiency, she said. Also, she said, make sure your bank doesn't have an ACH limit. She has seen some tariff payments not go through because the bank won't allow $1 million or more on wire transfers as a safety mechanism against typos.

If it is coming next year, Muoio said there are a lot of things to do to lower the valuation. You can subtract the cost of transportation in the other country. You can perhaps use a first sale for export. She suggested that firms negotiate with the exporter, getting them to agree to eat some of the tariffs, which would mean the price would be lower. She recommended that be done prior to export. But still, she said, expect questions from CBP: "Why is your product so much cheaper than it used to be?" Finally, Muoio recommended, don't forget about drawback.

In an interview after the panel, Muoio said firms shouldn't just consider classification with an eye to getting off the list. She said they should ask themselves: "Can I find a classification that has a more attractive normal rate of duty?" Because then, even with additional tariffs, they will save money. "That kind of action, along with the valuation, has an enduring long-term benefit" even after the Section 301 tariffs are lifted.