The Section 301 tariffs imposed on goods imported from China have had a monumental impact on the cost of import. They have left companies scrambling to find alternative sources of supply for their goods. Many of these companies have found undertaking a resourcing effort is no light matter. It takes time and resources to find a partner that will uphold quality and provide competitive costs.
There is hope for the companies impacted by the Section 301 Tariffs. Resourcing your supply is not your only option to mitigate or eliminate the effect of the tariffs. There are five proven ways for organizations to leverage legal means of avoiding paying the tariffs.
- Move Supply: A very time exhaustive method that can have large benefits. Finding a supplier either onshore or in another foreign country takes many resources to fully qualify, but it often allows for price negotiations, diversity of supply, and other improvements. Many companies find it efficient to use a third party to help with this task. These third party companies have experience and connections in the new source country. They can often provide the engineering, quality, and logistics services which will lighten the burden for the buyer.
- Pay First Sale Price: The amount of the tariff is determined as a percentage of the price of the good. If you import the good at price you pay your supplier, you will be paying more than if you arrange for your supplier to be the import of record. The tariff will then be paid at their cost. This is often done by requesting a Delivery Duty Paid or fully delivered price from your supplier.
- Re-Classify: Re-evaluating the HS codes used when importing goods can potentially lead to discoveries of errors that were made in the initial classification. This practice can also allow you to find other HS headings which will legally classify the imported goods and reduce the tariff. It is a best practice to partner with an importing and exporting expert to help you properly classify your goods.
- Modify BOM: The most creative of the five methods is to modify the product to allow it to be reclassified. Sometimes, with just adding or removing a feature of the good, it can legally be reclassified to reduce the tariff required.
- Assemble: A complex but very rewarding method of avoiding tariffs is to have the good assembled in a country with favorable trade agreements. The U.S. Customs and Border Patrol has made official rulings, or interpretations on many goods. These rulings can be used to help determine if a good qualifies to be imported with different country of origin. Some goods are assemblies made up of smaller components. If the ruling allows, an organization can ship the subcomponents to a manufacturer in a favorable country for assembly. Once complete, the good can then be imported with a new country of origin which imposes a lower tariff.