China Sanctions – What You Can Do Now

July 6, 2018 will be remembered as China sanctions day.

And I hope it is the last China sanctions day although many believe the war has just begun. Here is what I have learned so far working with companies negatively affected by the China tariffs.

  • There is no real way to address (you may prefer to substitute the word “avoid’ or “reduce”) the duty for each imported item other than by reviewing the bill of materials and supply chain for each product. Companies undertaking this analysis have found that they may have incorrectly determined the country of origin for the product and or that they may have misclassified certain items.  This is a good reason to review your broker’s analysis for classifications that are on the sanctions list.
  • Some companies have used this time to conduct supply chain audits and have found that there are ways to alter the supply chain to import parts or components differently.
  • Others are taking this as the “push” needed to shift manufacturing out of China to Vietnam, Malaysia etc.  I hear that plane flights out of China to Vietnam are booked solid.
  • Some companies are taking advice regarding how to use bilateral and multilateral trade agreements to reduce duties and shift part of their manufacturing processes. This requires a legal analysis of what constitutes substantial transformation under both the trade agreements and U.S. import laws.
  • Others are challenging HTSUS classifications that do not make sense in today’s global world and in light of the current policy of the U.S. government. CBP values importers taking the role of “importer of record” seriously and reviewing HTSUS classifications. If you can correctly classify an item outside of a number on the sanctions products lists and you can support that classification by prior decisions, Explanatory Notes, HTSUS Notes, and policy, go for it.
  • Companies are REALLY concerned about the proposed second set of sanctions.  These will affect a greater number of companies and consumers so start reviewing the bills of material and supply chain now if you have not.
  • Finally, every company should ensure that its members of Congress understand the full extent the Chinese tariffs will have on your company’s employees and families. Do not be afraid to do this.  It is very important. If you want to work through a trade association or your attorney, they can both help you.  Have your data ready; number of employees at your company, number of families in their district/state; how much these duties will cost your company every month; how long you can sustain the increased costs before you have to raise your prices and/or breach contracts.  To help your members of Congress understand that the China sanctions affect the local economy, take a look at the Chamber of Commerce tool.  Trade may be a global issue but trade is ultimately a local concern– jobs and the community.