With the imposition of significant tariffs on imports from China, the question on everyone’s mind is: what will happen now? Will China retaliate? If so, in what way? How will this impact us? While these are certainly important questions, there is another question that is perhaps equally important and may not be getting sufficient attention:
What can we do to minimize the impact or protect our rights?
With this question in mind, we offer a few initial suggestions for affirmative steps to help your company minimize the impact of additional tariffs on China-origin merchandise and to protect your right to a potential later remedy or refund.
First sale for export
Many companies impacted by tariffs on China-origin imports into the US may not have been paying much, if any, import duty previously. Many technology products, for example, enjoy duty free treatment upon import. As a result, they likely do not have some common duty planning tools in place, leaving these importers particularly hard hit by tariffs on Chinese imports.
One of the most common duty planning tools for impacted companies to consider would be the so-called “first sale for export” basis of valuation. Many US importers purchase their imported merchandise through trading companies, whether related trading entities or otherwise. Thus, the value used for importation and upon which duty is calculated, would ordinarily be expected to be the sale price from the trading company and the US importer. This price is a downstream value which includes overheads and profits attributable to the middleman trading entity. However, the sales price between the manufacturer and the trading company—an upstream transaction at a lower price—could also be the basis for calculating import duty liabilities where:
- The price the manufacturer charged the trading company is an acceptable transaction value i.e., the sale between the manufacturer and trading company is a bona fide sale;
- The imported merchandise was clearly destined for exportation to the United States at the time the trading company purchased or contracted to purchase; and
- The sale between the manufacturer and trading company is an arm’s length sale.
By appropriately utilizing a first sale basis of valuation for your imports from China, the impact of the additional tariffs on Chinese-origin imports could be reduced as a result of the lower basis of duty calculation upon import.
Savings under a first sale for export basis for valuation can be substantial. We would encourage US importers impacted by the tariffs on Chinese imports to consider qualifying their trading company/manufacturer transactions as soon as possible. Especially those importers not accustomed to paying duty on their imports from China.
We want to note that setting this up properly is imperative as penalties can result from improper claims. Should you wish to discuss this further, please contact us.
Buying agency
As with first sale for export valuation discussed above, buying agency commissions is a long-standing exclusion from dutiable value that importers who are accustomed to paying high tariffs have long been employing. As many of the importers impacted by these tariffs on China-origin imports may not be accustomed to paying such duties, it is more likely such items that are not necessarily dutiable have been simply included in the reported transaction value over the years as it has had no impact on duty liabilities. We would therefore suggest a review of whether or not you have or may have proper claims to exclude buying agent commissions from your import value.
Ordinarily, an importer must add to its transaction value, which is the basis of the customs duty calculation, and amount for commissions paid for the imported merchandise. Except, buying commissions. Such commissions need not be added to transaction value and are therefore not dutiable. A “buying commission” is a fee paid by an importer to its agent (“Buyer’s Agent”) for the service of representing the importer abroad in the purchase of the goods being imported. In this regard, not unlike the situation for first sale for export basis of valuation, excluding from the dutiable value an amount for buying agency commissions should be done carefully and ensuring the legal requirements of a bona fide buying agent are properly met. Failure to do so could result in penalties to the importer making the improper claims.
Ensuring that the service agreements in place meet the legal requirements of a bona fide buying agent and that the agent is sufficiently independent from the seller are key areas of focus in properly establishing buy agency programs. Should you have questions or require assistance in this regard, please do not hesitate to contact our office.
Participate in potential litigation
We expect these tariff measures will be under significant legal challenge both at the World Trade Organization as well as in a court in the United States. Should the tariffs ultimately be invalidated, there could be a potential to receive refunds for qualified importers. In order to protect your ability to receive refunds you should be a participant in the appeal process. This participation may be made through the submission of a summons and complaint with the U.S. Court of International Trade. We would expect many such complaints to be filed and, as such, a consolidation of the numerous cases under a single lead case is likely to result. Whilst your participation in such a consolidated case may not need to be substantial or heavily involved, you will likely need to be a litigant in order to benefit from any retrospective refunds that may ultimately be available if these challenges are successful.
Should you wish to explore this option, please do not hesitate to contact our office.
Protest the liquidation of your entry declarations
In the US, the duties paid upon import are considered to be estimated duties unless and until those duties are later finalized or “liquidated” by customs. Those liquidations can be by affirmative action from customs, i.e., they actually reviewed and finalized your transactions, or by operation of law which occurs 314 days after importation. Once liquidated, you can then submit an administrative protest against the liquidation of the entry. In this case, your claim would be that the liquidation of the entry with additional tariffs on imports from China under the Section 301 action is inappropriate.
This action may preserve your specific import transactions impacted by the tariff measures for review and refund following any favorable ruling that could result from administrative or judicial action against the tariff measures. We note, however, that the jurisdiction of the court to hear a challenge to the liquidation of these entry declarations in a case such as this is likely to be contested by the government. Whilst the jurisdictional arguments can be somewhat complicated, what is clear is that protesting the liquidation of entry declarations is relatively easy and low cost and preserving possible future refund claims through an additional avenue may be prudent.
Again, many of the companies impacted by these tariff measures on imports from China may not be accustomed to paying significant—if any—import duties. We would suggest a review of old and often used duty planning tools in order to help your company minimize the impact to the extent possible. Also, participation in any challenge to this action may also be worth considering. If these challenges are ultimately successful, the beneficiaries of any retrospective refunds may be limited to only those that participated and preserved their rights.
Should you have any questions or wish to discuss this further, please contact me at william@marshall-legal.com.