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This Week's Trade & Tariff Perspective

November 17, 2021 | Anahi Czeszewski  Product Development Manager

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Proactively Prepare for the Upcoming 2022 Harmonized System Updates

As year end rapidly approaches, it’s time to review your tariff classifications. This year is especially critical, as the World Customs Organization (WCO) has made more than 350 amendments to the Harmonized System, going into effect on January 1, 2022. Act now to avoid costly shipping delays and significant compliance issues in your supply chain.

Watch this week's Trade & Tariff perspective:

 

What is the Harmonized System?

Established in 1988, the Harmonized System (HS) was enacted to provide structure and uniformity for the classification of more than 5,000 globally traded commodity groups. The HS serves as a basis for customs tariffs for more than 200 countries and economies across the world, with the mutual agreement to use the same six-digit product classification codes.

What is changing in the HS nomenclature in 2022?

Every five years, the WCO undertakes a review of the existing HS and determines whether appropriate amendments should be created to remain current. The external factors considered are product advances in technology, new product stream development, environmental concerns, and changes in global trade. The amendments in this seventh iteration of the HS comprise 351 sets of amendments.

Technological advancements

There is no dispute—technology is ever evolving. To ensure the HS nomenclature 2022 appropriately reflects the significant advancements that have occurred in the past five years, amendments were created. Products affected as a result of such changes include:

  • Novel tobacco and nicotine-based products (i.e., vapes)
  • Drones
  • Smartphone devices
  • Flat-panel display modules
  • Glass fibers and articles thereof
  • Metal-forming machinery

Health and safety at the forefront

Recognizing that infectious diseases and outbreaks are a constant global threat, new provisions have also been added for items used in diagnostic efforts and medical research, including:

  • Diagnostic kits
  • Placebos and clinical trial kits for medical research
  • Cell cultures and cell therapy

Protection of society

Maintaining a committed focus on the fight against terrorism, numerous subheadings have been created for dual-use goods that can be used in unauthorized ways, such as:

  • Radioactive materials
  • Biological safety cabinets
  • Items used to construct explosive devices

How can this impact my company?

The classification of merchandise impacts importers and exporters across the globe, as classification has a bearing on not only the most favored nation (MFN) duty rate, but other significant implications, including:

  • Punitive tariffs could potentially be added to your bottom line or possibly be removed. Consider Section 301 China tariffs and Section 232 steel and aluminum tariffs.
  • Modification to the HS can potentially change your eligibility for participation in preferential trade agreements, such as the United States – Mexico – Canada Agreement. Review the implications now to understand the impact on your future landed cost.
  • Products may need to meet new (or additional) partner government agency requirements.
  • Amendments could result in new flags for antidumping and countervailing duty cases, which were previously unflagged.

Proactively navigate through the HS 2022 amendments

Companies participating in cross-border trade must be proactive and take action to understand their global impact from the upcoming HS amendments. Consider implementing these steps today:

  1. Familiarize yourself with the HS nomenclature 2022, as published by the WCO.
  2. Study the correlation tables to analyze the changes from HS 2017 to HS 2022. The two tables can be used as a guide to compare the various amendments. Not all modifications will result in a new tariff heading. For example, some amendments only include additional clarification in descriptions, based on the evolution of certain products.
  3. Use the HS tracker, created by the WCO, which allows you to visually see changes throughout the previous HS iterations, as well as gain insight into the rationale behind such changes. (See HS at a glance example in Exhibit A, below.)
  4. If specifically importing into the United States, read the United States International Trade Commission’s recommendations to the President and guidance on the amendments for the Harmonized Tariff Schedule of the United States (HTSUS).
  5. Similarly, if shipping to other countries, stay informed on each country’s adoption of the HS 2022 amendments, such as Canada’s Customs Tariff and the EU’s Combined Nomenclature.
  6. Ensure that as a reflection of the HS 2022, your parts database is updated, as necessary. Consider each country you ship to, as each country will have its own specific adoption to the HS 2022 amendments.
  7. Communicate your updated parts database to your customs brokers as soon as possible to avoid clearance delays.
  8. Consider proposing a change if you do not believe your products are correctly defined in the HS 2022. (The HS Committee meets every six months to review proposed changes. It is not too early to begin your preparation efforts now.)

Exhibit A: HS at a glance (HS 2022 updates to heading 8462)

HS tracker table

Source: HS Tracker, published by the WTO

Next steps

Need help classifying your products? Our dedicated classification team can help you navigate through the upcoming tariff changes and assist with the classification of your products once country-specific adoptions are made available. Connect with one of our trade policy experts to learn more.

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Trade & Tariff Resources

Get the latest news regarding tariffs and trade that can impact your business. We break down the variables of recent changes into simple, effective summaries you can use to better understand the ever-changing and often complicated trade policy and enforcement environment.

USICA resources

The United States Innovation and Competition Act (USICA) was passed by the U.S. Senate in June 2021 to counter China’s growing influence in science, technology, and advanced manufacturing.

What’s included in the bill

Major components of the bill include investments in domestic manufacturing of “strategic sectors” like computer chips and PPE.

Also included is the Trade Act of 2021, which would reinstate certain exclusions to Section 301. Additionally, under USICA, importers of Generalized System of Preferences (GSP) products could be retroactively refunded for certain duties paid and no longer have to pay duties and tariffs on GSP imports until January 1, 2027, when GSP will expire again.

Determine the potential impact to your business

Uncover potential duty refunds if the USICA passes into law* with our U.S. Tariff Search Tool. Instantly search by Harmonized Tariff Schedule (HTS) and estimate your retroactive duty refund amount today.

*The USICA is currently a bill and has not yet become law. Aspects of the bill can change and amendments can be made. The information provided herein does not guarantee any refund and undue reliance should not be placed on it. Proper review and thorough analysis are required to determine outcome.

U.S. Tariff Search Tool

Section 301 - Unfair trade practices

What is it?

Section 301 of the Trade Act of 1974 — Allows the United States Trade Representative (USTR) to suspend trade agreement concessions or impose import restrictions if it determines a U.S. trading partner is violating trade agreement commitments or engaging in discriminatory or unreasonable practices that burden or restrict U.S. commerce.

Background ReportCongressional Research Service – Section 301 of the Trade Act of 1974 – August 2020

Update: October 4, 2021

Reinstatement of Targeted Potential Exclusions — Following United States Trade Representative’s (USTR) announcement on October 4, 2021, the USTR has started a targeted tariff exclusion process. The agency invited public comments on whether to reinstate previously extended exclusions. Of the more than 2,200 exclusions granted, 549 were extended. Most previously expired on December 31, 2020. The USTR will evaluate, on a case-by-case basis, the possible reinstatement of each exclusion. If granted, the USTR will reinstate exclusions retroactively to October 12, 2021, and publish them in the Federal Register.

 

Section 232 - National security concerns

What is it?

Section 232 of the Trade Expansion Act of 1962—Allows the president to adjust imports if the Department of Commerce finds certain products are imported in such quantities or under such circumstances as to threaten to impair U.S. national security.

Background ReportCongressional Research Service – Section 232 Investigations: Overview and Issues for Congress – August 2020

 

Section 201 – Cause/threat to domestic industry

What is it?

Section 201 of the Trade Act of 1974—Allows the president to impose temporary duties and other trade measures if the U.S. International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry.

Background ReportCongressional Research Service – Section 201 of the Trade Act of 1974 – August 2018

More trade topics & resources

Compliance checklists, on-demand webinars, and more from U.S. Customs and Border Protection.

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Weigh speed, cost, capabilities, risks, and returns to determine how to keep your freight moving forward.

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Trade & Tariff FAQs

Q: What is a tariff?

Tariffs or duties are taxes assessed on imports of foreign goods, paid by the importer to the U.S. government, and collected by U.S. Customs and Border Protection (CBP). Current U.S. tariff rates may be found in the Harmonized Tariff Schedule (HTS) maintained by the U.S. International Trade Commission (ITC). The U.S. Constitution grants Congress the sole authority to regulate foreign commerce and therefore impose tariffs, but, through various trade laws, Congress has delegated authority to the president to modify tariffs and other trade restrictions under certain circumstances.1

Q: What are various types of import restrictions that can be imposed by the government?

Tariffs – A tax on imports of foreign goods paid by the importer. Ad valorem tariffs are assessed as a percentage of the value of the import (e.g., a tax of 25% on the value of an imported truck). Specific tariffs are assessed at a fixed rate based on the quantity of the import (e.g. 7.7% per kilogram of imported almonds), and are most common on agricultural imports.

Quotas – A restriction on the total allowable amount of imports based either on the quantity or value of goods imported. Quotas are in place on a limited number of U.S. imports, mostly agricultural commodities, in part due to past trade agreements to remove and prohibit them.

Tariff-Rate Quota (TRQ) –TRQs involve a two-tiered tariff scheme in which the tariff rate changes depending on the level of imports. Below a specific value or quantity of imports, a lower tariff rate applies. Once this threshold is reached, all additional imports face a higher, sometimes prohibitive, tariff rate.

Q: Have U.S. trading partners taken or proposed retaliatory trade actions?

Yes. Some U.S. trading partners subject to the additional U.S. import restrictions have taken or announced proposed retaliations against each of the three U.S. actions. Since April 2018, a number of retaliatory tariffs have been imposed on U.S. goods accounting for $126 billion of U.S. annual exports, using 2017 export values.

Q: How much has the U.S. government collected from the various trade remedy measures?

U.S. Customs and Border Protection (CBP) assesses and collects duties on U.S. imports, including the additional duties imposed as a result of the president’s tariff actions. As of September 9, 2020, U.S. CBP has reported the following duty assessments.

Q: Are products of Hong Kong subject to the additional Section 301 duties against China?

No. Additional duties imposed by the Section 301 remedy only apply to articles that are products of the People’s Republic of China (ISO Country Code CN). Imported goods that are legitimately the product of Hong Kong (HK) or Macau (MO) are not subject to the additional Section 301 duties. Please note that Section 301 duties are based on country of origin, not country of export.2

Q: Are Section 301 duties eligible for drawback?

As noted in CSMS Message 18-000419, Section 301 duties are eligible for duty drawback. Drawback is the refund of certain duties, internal revenue taxes, and certain fees collected upon the importation of goods. Such refunds are only allowed upon the exportation or destruction of goods under U.S. Customs and Border Protection supervision.

Q: What is the timing of duty calculations on immediate transportation in bond entries subject to Section 301?

Duties are due on goods that are entered for consumption, or withdrawn from warehouse for consumption, on or after the effective date of the provisional tariffs. For entries covered by an entry for immediate transportation, and with a country of origin of China, and a Harmonized Tariff Schedule (HTS) classification covered by Annex A to the FRN, such entries shall be subject to the duty rates in effect when the immediate transportation entry was accepted at the port of original importation, pursuant to 19 CFR 141.69 (b), which states:
Merchandise which is not subject to a quantitative or tariff-rate quota and which is covered by an entry for immediate transportation made at the port of original importation, if entered for consumption at the port designated by the consignee or his agent in such transportation entry without having been taken into custody by the port director for general order under section 490, Tariff Act of 1930, as amended (19 U.S.C. 1490), shall be subject to the rates in effect when the immediate transportation entry was accepted at the port of original importation.

Q: Are products entered under the Section 321 de minimis exemption (under $800) subject to Section 301 duties?

No, not right now. Goods properly entered under Section 321 are not subject to Section 301 duties. Please note that a formal entry is required if a shipment contains merchandise subject to AD/CVD. Goods subject to AD/CVD do not qualify for Section 321. Something to keep an eye on: U.S. Customs and Border Protection (CBP) submitted a proposal in early September 2020 to the Office of Management and Budget that would eliminate the $800 de minimis exemption for goods subject to Section 301 tariffs. Remember, Section 321, 19 USC 1321 is the statute that describes de minimis. De minimis provides admission of articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed $800. The de minimis threshold was previously $200, but increased with the passage of the Trade Facilitation and Trade Enforcement Act (TFTEA).

Q: Can I still apply for exclusions to the Section 301 (China) tariffs?

The time window to submit new exclusion requests is now closed, but the USTR is considering extensions of exclusions granted from Lists 1, 2, 3, and 4. While the USTR approved, on average, 35% of requests under the first two actions, the approval rates under the third and fourth actions were 5% and 7%, respectively.3 Be sure to check in with your trusted trade advisors to see if new comment periods open.

Q: Are products used to support the fight against COVID-19 subject to the additional Section 301 (China) tariffs?

The USTR announced on March 20, 2020, that, prior to theCOVID-19 outbreak, the agency had been working with the U.S. Department of Health and Human Services “to ensure that critical medicines and other essential medical products were not subject to additional Section 301 tariffs.” Consequently, the United States had not imposed tariffs on certain critical products, such as ventilators, oxygen masks, and nebulizers. Moreover, the USTR indicated that, in recent months, it has prioritized the review of requests for exclusions on medical care products, resulting in exclusions granted on basic medical supplies, including gloves, soaps, face masks, surgical drapes, and hospital gowns. Since March 2020, the USTR has exempted certain medical products from Section 301 tariffs in several rounds of exclusions.3

Q: How do I find out if my product is subject to Section 301 tariff duties?

Enter the product’s harmonized tariff schedule (HTS) classification on the USTR website. In addition, you can refer to our exclusive guide to quickly search both the Section 301 tariff lists but also identify if there are any exclusion opportunities. Talk to your Trusted Advisor® expert at C.H. Robinson to learn more.

Q: Do Section 301 (China) duties still apply if I ship goods to another country, such as Canada or Mexico, and have them packaged there before entering the commerce of the United States?

Yes. Basic changes/processes such as packaging, cleaning, and sorting would not change the country of origin to be declared in most cases. The origin would still be China and therefore the Section 301 duties would still apply.

Q: If I previously paid Section 301 (China) duties, but an exclusion was later issued by the United States Trade Representative (USTR), can I get my money back?

Yes. You have the opportunity to potentially recover duties paid on previous entry activity. Your customs broker, trade attorney, or trade consultant can submit a refund request via Post Summary Correction (PSC) or Protest as long as the entry has not exceeded the liquidation date plus 180-day time period (roughly 480 days from the original entry date). Remember, your company doesn’t have to be the one that requested the exclusion in the first place. You qualify as long as your product meets the specific description of the exclusion granted by the USTR.

Q: Does U.S. Customs and Border Protection (CBP) pay interest when refunding duties previously paid?

Yes! CBP does pay interest from the date the original money was deposited. The current interest rates are published in the Federal Register on a quarterly basis. Review the most recent Federal Register Notice for the latest rates.

References

1. Congressional Research Service – Trump Administration Tariff Actions (Sections 201, 232, and 301): FAQs

2. Section 301 Trade Remedies Frequently Asked Questions

3. Congressional Research Service - Section 301: Tariff Exclusions on U.S. Imports from China

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