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Companies need to act quickly and carefully on tariff deferral program

In mid-April, U.S. Customs and Border Protection (CBP) launched a program under which many importers may qualify for a 90-day postponement in the payment of duties, taxes and fees if they can demonstrate financial hardship related to the coronavirus (COVID-19). Based on an executive order signed by President Trump on April 18, CBP issued a temporary final rule providing a deferral for payments that would ordinarily be due, related to the date of entry or withdrawal from a warehouse for merchandise entered in March or April 2020.

The duty deferral presents a limited opportunity for certain companies to save cash during a period where their business is closed or revenues have substantially declined. Because of the temporary nature of the deferral, companies need to act quickly. Here are three key questions to start:

  • Do companies know the program exists? With the abrupt slowing or shutdown of local economies, many companies have been so focused on short-term survival they may not have heard about the deferral program. Even if they have, they may need help from an outside trade advisor to understand if their company can take advantage of the deferral.
  • Do companies understand which products are covered by the deferral and which are not? The temporary postponement applies to formal entries of merchandise entered, or withdrawn from a warehouse, for consumption (including entries for consumption from a foreign trade zone) in March or April 2020, where estimated duties, taxes and fees have not been paid. Items subject to antidumping or countervailing duties – including medical products imported from China – are not eligible for the program. (The Office of the U.S. Trade Representative is considering the possible removal of Section 301’s 25% tariffs on medical products from China, including those that may have previously been rejected for an exclusion.)
  • Do companies understand and meet the definition of significant financial hardship? According to the temporary final rule, an importer will be deemed to have suffered “significant financial hardship” if its operations were fully or partially suspended during March or April 2020 due to orders from a government authority limiting commerce, travel or group meetings because of COVID-19, such that gross receipts for March 13 to 31, or for April, 2020, are less than 60% of the gross receipts for the comparable period in 2019.

The key to compliance and maximizing the deferral’s benefit is through properly completing entry documentation. Most companies likely will need to consult specialist counsel or their customs broker regarding applicability of the temporary rule to their situation. While a company does not need to provide CBP with evidence in its import documentation for March and April, it must keep such information in its records. If a company has already paid duties for March and April, the CBP will not be providing refunds as part of the deferral program. (The CBP is maintaining a robust FAQ page about the program.)

As the pandemic plateaus in different parts of the country, local economies are beginning to open up. If COVID-19 cases spike and economies close down again, it’s possible CBP will expand tariff deferrals beyond March and April to help support affected industries.

Actions beyond the deferral

Regardless if a company is able to take advantage of the temporary relief, now is the time to consider other trade strategies designed to avoid/minimize duties, lower risk, increase resilience and improve the flow of goods across the supply chain.

To prepare for a post COVID-19 supply chain, companies need to take steps such as taking another look at tariff classifications and the origin of components, developing a comprehensive strategy on duty deferral including drawback, and identifying trade regulations that often times are overlooked only to surface after sourcing changes have been made.

In addition, as sourcing decisions are under review, this is also the time for companies to perform due diligence on site selection, determining if countries under consideration have the proper infrastructure and manufacturing capacity in place, as well as labor availability and skills/education levels to meet required quality levels.

For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.

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