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American Shipper

FTA countries likely not exempt from metal tariffs, expert says

Steel and aluminum imports from countries with which the United States has a free trade agreement with are likely not exempt from tariffs ordered earlier this month, according to Lou Abad, principal for KPMG Trade and Customs Services.

   The “plain reading” of President Donald Trump’s proclamations ordering generally global steel and aluminum tariffs indicates that imports from countries with which the U.S. has a free trade agreement (FTA) with will not be exempt, and it’s possible that standard, non-FTA tariffs would be applied in addition to those recently announced tariffs, even for FTA countries, a trade expert said during a Monday webinar.
   But the Trump administration has already announced that U.S. FTA partners Australia, South Korea, Canada, and Mexico will be excluded until May 1, at which point Trump will decide whether to continue the exemptions.
   Speaking during a KPMG “TaxWatch” webcast analyzing Trump’s “Section 232” tariffs of 25 percent against steel and 10 percent against aluminum announced earlier this month, Lou Abad, principal for KPMG Trade and Customs Services, also noted, however, that the standard duty rate for most of the affected products is zero.
   “But in cases where there is an underlying duty, and it is imported from a country with which there is an FTA…that would be my understanding, that you would lose the preference on the FTA, and you also can’t use that FTA to kind of circumvent the additional punitive tariff,” Abad said.
   The U.S. government has created the new Harmonized Tariff Schedule (HTS) code of 9903.85.01 for the aluminum and steel tariffs, which must be filed in addition to the product’s normal HTS code, according to the KPMG briefing slides.
   The impact of the metal tariffs could spread to the automotive, food and beverage, packaging, building materials, home improvement, aerospace and defense, oil and gas, and chemical industries, according to slides.
   For cases of product exclusions, it’s unclear whether the financial benefits will be assessed through some sort of refund process or whether some sort of rolling accounts will be opened where “duties will accrue, but not be payable,” Abad said. But exclusions will be retroactive to the date that corresponding requests were made public in the Commerce Department’s exclusion portal, he said.
   Companies should be advised to focus heavily on using the correct rules of origin for any steel or aluminum they import, as U.S. Customs and Border Protection is expected to thoroughly vet whether applicable goods were improperly trans-shipped through any exempted countries, Abad said.
   “You always want to make sure that you’re using the right rule of origin for your product, because…if you’re circumventing these tariffs, it could get you in some hot water,” he said. “You want to make sure you’re doing it right.”
   While it’s possible that countries could file a World Trade Organization (WTO) challenge against the tariffs – which were assessed based on Commerce findings that steel and aluminum imports could impair U.S. national security – such a dispute likely wouldn’t succeed, Abad said.
   That’s because the WTO provides for a broad national security exception pursuant to Article 21 of the 1994 General Agreement on Tariffs and Trade (GATT), a basis for the WTO’s formation, Abad said.
   Abad added that, to his knowledge, “the WTO has [n]ever determined the limits of permissible action under the national security provision. So I think it would be very difficult to successfully challenge a WTO action under 232.”
   Section 232 of the Trade Expansion Act of 1962 authorizes the President to assess trade remedies, including tariffs and/or quotas, if imports of an investigated good are found to harm national security.
   KPMG U.S. Practice Leader for Trade and Customs Services Andrew Siciliano during the webinar encouraged businesses to focus as much on trade regulations as possible, noting that Trump has mentioned the Section 232 tariffs could signal merely the beginning of a trade landscape with much more tariffs.
   He advised companies to look into filing for product exemptions with Commerce, and to explore whether it’s possible to accurately lower the dutiable value of their imports.
   “Every time you import a good, you assign a value that goes on the entry,” Siciliano said. “Duty rates are assigned against that value. And there’s a myriad of customs opportunities with respect to changing that value or modifying it or pulling costs out that aren’t dutiable. There’s a lot of things to look at….When the goods are duty-free, companies don’t really care what’s bundled into that price. It doesn’t really matter, because the goods are duty-free, anyway, and if I throw some non-dutiable transportation costs in there, it’s easier to just have it in the invoice price, and there’s no duty impact. Now there will be, so looking at what’s in that value very closely is key.”
   The Bureau of Industry and Security (BIS), the lead agency for the Section 232 process, didn’t respond to a request for comment.

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