CBP Handling of Section 301 Tariff Decrease for FTZ Goods Called 'Inconsistent'

CBP's notice on the coming Section 301 tariff decrease (see 2002040045) and the agency's treatment of List 4A goods in foreign-trade zones are drawing some industry concerns. The CBP notice said the duty rate for goods subject to the tariffs in FTZs is based on “the rate of duty and tax in force on the date of filing the application for privileged foreign status.” CBP's interpretation “is inconsistent with existing CBP precedent and [we] will be challenging it on behalf of our a number of clients,” said Sidley lawyer Ted Murphy in a blog post.

Under CBP's view, the “duty rate is frozen as of the date that privileged foreign status was claimed,” Murphy said. “As a result, if you admitted List 4A articles into a FTZ after the duties went into effect (on or after September 1, 2019), but seek to withdraw those articles and enter them for consumption on February 14, 2020 or later, you will not get the benefit of the reduction to 7.5% (i.e., you will be paying the Section 301 duties at the rate that was in effect on the date privileged foreign status was claimed).”

A CBP spokesperson confirmed by email “that FTZ merchandise with a privileged foreign status date of before February 14, and during the time that the 15 percent Tranche 4A Section 301 duty was in effect, will be subject to the 15 percent duty when withdrawn from FTZ with a consumption entry.”

That position seems to be at odds the expectations of the FTZ industry. Before CBP issued its CSMS message, Marshall Miller, a lawyer with Miller & Company, recently noted that previous CBP guidance on the Section 301 tariffs said that when eligible FTZ goods are entered for consumption, the duty rate depends on the HTS subheading at that time. Miller, who is general counsel to the National Association of Foreign-Trade Zones, said in a later email after the CBP message went out that “merchandise admitted in PF status prior to February 14, 2020 will be subject to the higher 15% duty rate.”

As a result, “clients should defer in-bond movements and FTZ admissions of List 4A merchandise until February 14, 2020 to take advantage of the reduced 7.5% duty rate,” Miller said. “As it is unclear how the ACE system will process these entries because the same HTSUS subheading is used for all China Section 301 List 4A merchandise, clients should also instruct their brokers and/or software provide[r]s to use the higher 15% rate for merchandise subject to China Section 301 List 4A duties with a PF election date prior to February 14, 2020 and validate Customs entry records." The NAFTZ did not comment.