There are a number of ways that vehicle and automotive parts companies can lower the duty that they pay for items imported into the United States. While these strategies have been in existence for many years, the use of these strategies has grown tremendously in recent years, given the increase in taxes imposed on various goods imported into the US (especially those manufactured in China).
Tariff Classification and Engineering
Vehicle and automotive parts companies importing goods may be able to lower the duty that they pay for articles by changing the tariff classification that is used to enter these items. This can be done lawfully when the tariff classification being used is found to be incorrect, or when slight changes are made to the design and manufacture of the articles at issue.
For example, in a ruling issued by US Customs and Border Protection (“CBP”) in December of 2020, an importer successfully argued that its two-post vehicle lifts were classifiable as “Other lifting, handling, loading or unloading machinery” in heading 8528 of the tariff schedule as opposed to “Jacks [or] hoists of a kind used for raising vehicles” in heading 8525. CBP had previously ruled that the company’s lifts were classifiable as “jacks [or] hoists”, but overturned its decision after finding that the articles did not “pull a vehicle up using a hook and chain or a rope” (which was the function of a hoist), and that they “raise[d] vehicles more than a short distance” (whereas a jack was designed to lift loads over short distances only).
Additionally, in a ruling issued by CBP in May of 2017, an importer successfully argued that an oil cooler core (which cooled automatic transmission fluid in semi-trucks equipped with an Allision transmission) was classifiable as a “part of [a] heat exchange unit” in heading 8419, rather than as a “part of a motor vehicle” in heading 8708. CBP looked to the section notes of the tariff schedule before finding that the importer was correct in its assessment that the oil cooler cores were classifiable as parts of heat exchange units. This change in tariff classification resulted in a 2.5% duty savings for the importer.
To help importers who may not have the bandwidth or know-how to fully engage in the classification process, Sandler Travis & Rosenberg, P.A. (“ST&R”) has professionals with extensive knowledge of the classification opportunities that exist for automotive parts and vehicles. ST&R works with importers by reviewing their current classifications to ensure their correctness, and by suggesting design changes to current products that may result in substantial duty savings.
Companies requiring expert assistance in identifying potential alternative classifications for the products that they import should contact TKAO or ST&R. Charles “Chuck” Crowley can be reached at +1 (914) 433-6178 or ccrowley@strtrade.com, and Mika M. McLafferty can be reached at +1 (212) 549-0165 or mmclafferty@strtrade.com).
Strategic Manufacturing
The assessment of duties on goods imported into the US is dependent on a product’s country of origin as much as its classification. The more recent implementation of additional duties of between 7.5% and 25% on certain goods that are Made in China has meant that the country of origin of products imported has become increasingly relevant.
Where vehicle and automotive parts companies are manufacturing a specific product in more than one country, ST&R can review manufacturing processes to determine the proper country of origin of that product. ST&R can advise companies as to what steps in the manufacturing process may confer origin to a product, so that companies can strategically perform origin-conferring operations for a product in the country that provides the most favorable duty rate. In the case of goods being produced in part in China, it is imperative that companies understand whether the operations being performed in China are origin-conferring, such that the finished product may be subject to additional duties of between 7.5% and 25% upon importation.
As an example, CBP recently analysed the proper country of origin of motors that were manufactured in multiple countries, including China. Importers of those items were interested in understanding whether CBP would consider the country of origin of those motors to be China, in which case additional duties of 25% would apply to the products at the time of importation. As recently as May, 2021, CBP has issued rulings in which it found that rotors and stators are the dominant components of finished electric motors, and found that the origin of a motor was determined by the origin of the rotor and stator cores.
Those interested in understanding how to strategically manufacture their product to avoid the potential assessment of Section 301 duties of between 7.5% and 25% should contact TKAO or ST&R. Charles “Chuck” Crowley can be reached at +1 (914) 433-6178 or ccrowley@strtrade.com, whereas Mika M. McLafferty can be reached at +1 (212) 549-0165 or mmclafferty@strtrade.com).
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