Most Products on Section 301 Tariff List Now Duty-Free; Some Overlap With Section 232 Tariffs

The slew of trade remedies "changes everything" for importers, making programs like drawback and foreign-trade zones more valuable to companies that previously didn't need to consider such options, said Amie Ahanchian, KPMG managing director, Trade and Customs Services, during an April 16 KPMG webinar. Of the 1,333 tariff lines on the Section 301 list (see 1804040019), about 60 percent, or around 800 line items, are duty-free today, she said. That means "if you're importing these items, you may not have ever considered a customs planning strategy because there were no duties to mitigate in the current trade environment," she said.

Any Section 301 tariffs probably won't take effect before July, "based on what we're seeing on how the timeline is playing out," said George Zaharatos, a principal in KPMG's trade and customs practice. "Section 301 action may be taken as early as June," with another 30 days allowed before full implementation, he said. USTR will consider comments on the list submitted by May 11 and hold a hearing on the proposed tariffs on May 15 at the International Trade Commission in Washington. Requests to appear at the hearing are due April 23, and post-hearing rebuttal comments are due May 22. KPMG's Euroasia Group gives the likelihood of some type of Section 301 tariff going forward at 60 percent, he said.

The consumer products and vehicles industries would be among the most affected by the 301 tariffs, Ahanchian said. Another area "where we've also seen a significant impact is in the area of life sciences, medical devices and pharmaceutical," she said. "What we see here is going to be an increased tariff of 25 percent on a lot of products in this category, including vaccines, antibiotics, insulin," as well as defibrillators and pacemakers, she said. There are also about 100 HTS codes that are covered by both the Section 301 products list and the recently implemented Section 232 tariffs on steel and aluminum, potentially resulting in an even larger impact on an importer, she said.

Importers should consider developing a "roadmap" of customs strategies, Zaharatos said. Quantifying the impacts of the Section 301 tariffs through data review should be the first phase of such an effort, he said. Such data, including from ACE, could also help in developing arguments for removal of certain products from the list, Zaharatos said. Importers that would like to comment on the list should outline multiple pieces of supply chain strategies, such as involvement in the Customs-Trade Partnership Against Terrorism and the possibility of sourcing changes, he said.

Importing companies should also gather technical information from involved engineers or procurement professionals to consider classification options for goods potentially subject to the duties, Zaharatos said. "Once you've classified your product, if there are any competing classifications" it may be possible to engineer a product to be outside the Section 301 list, he said. Documenting that process is important because "if Customs came in after the Section 301 duties were put in place and question a change" and "you did not have the support, you're likely to be doing a lot of work on the back end." Avoiding a higher rate of duty should not be the basis for a classification, he said.

There are also ways to "lawfully reduce the value" of imported Section 301 goods by making certain to strip out non-dutiable fees and using first-sale programs, Ahanchian said. Documenting the rationales for valuation changes would also be important, she said. Use of FTZs is a way importers can manage timing of Section 301 duty payments, because the duties aren't due until the goods enter customs territory, she said.

Free trade agreement eligibility is also worth reviewing as it relates to new tariffs, Ahanchian said. For example, using net cost regional value content within NAFTA, "the additional customs duties, if your non-originating materials are imported from China, those additional customs duties could go toward the non-originating material in the NAFTA qualification and really throw off your eligibility," she said.