The other day, my pal Larry Friedman, also a lawyer, sent me an article he had found about the shortage of bucatini pasta. Itās a funny article, available on grubstreet.com. Bucatini is a tubular pasta shape with a hole longways through the middle. Larry thought the story would interest me because it included discussion of the Food and Drug Administrationās āstandard of identityā for macaroni. (This column has discussed such standards in the past).
The story piqued his interest because it also described how people have been using bucatini as a straw instead of plastic straws, and any discussion of a thing that might be another thing is the essence of his law practice, which is concentrated in customs requirements for imports and exports. He helpfully explained the basics:
āMost imported items are subject to a duty based on a percentage of the value of the merchandise. For about half the merchandise that enters the U.S., that rate is āfree,ā meaning no duties are assessed. For dutiable goods, the rates range from a fraction of a percentage to around 40%. The average rate of duty is about 3%. Some footwear, for example has a 37.5% rate of duty.ā The duty is based on the nature of the product and its country of origin. Because straws and macaroni likely have different rates, this is a ātariff classificationā question.
Sometimes, tariffs are imposed in order to implement a specific government policy that isnāt directly related to the articles or products involved. āTariffs can be assessed to offset unfair trade practices, to protect national security, and for other policy reasons,ā Larry explains. āFor example, President Trump has imposed a 25% tariff on a large group of products from China, a 25% tariff on steel from most countries, and a 10% tariff on aluminum from most countries.ā
Packaging imports are included. āFor example, there is a category of merchandise for plastic āCarboys, bottles, flasks, and similar articles,āā Larry says. āPlastic items in this category are subject to a 3% duty (and an additional 25% if from China). On the other hand, glass containers used for packing perfumes or other ātoilet preparationsā are subject to a 2.5% duty if āproduced by an automatic machine.ā If not, the rate jumps to 5.2%. The glass containers are also subject to the 25% duty on goods from China.ā
Most people understand that when you import things or articles, you gotta consider the customs tariffs, if there are any, and thatās on top of whatever other regulatory obligations apply to it.
Sometimes companies and governments disagree about what a thing is.
āThe classification controls the cost of importing goods and has a direct financial impact on clients. Classification is also used to indicate (but not conclusively) other regulatory requirements. For example, goods classified as plastic bottles might trigger both U.S. Customs and Border Protection and the FDA to examine the merchandise and determine whether it requires FDA clearance.ā
Customs lawyers like Larry can help keep tariff costs down. āIf we see an opportunity to reduce duties or otherwise create efficiencies for the importer through classification, we can submit requests to Customs for a binding classification opinion.ā Or, āIf Customs makes a classification determination with which we disagree, there is an administrative protest process to challenge that decision.ā
Larry says classification is like a very technical puzzle, taking into account a broad range of facts. āThe physical characteristics of the merchandise are the primary considerations, but we might also consider how the product is used after importation. The controversies often surround the meaning of words in the tariff, particularly when new products or technology come to the market.ā
āAs an example, there was a long-running controversy over the classification of sandwich wrappers consisting of aluminum foil laminated to paper and printed with restaurant logos. This product might have been classified as a paper, a label, or aluminum foil that has been ābacked.ā Customs had to work through the meaning of the terms ālabel,ā ābacked,ā and āprinted.ā In the end, Customs decided that the wrappers were fully described as āAluminum foil (whether or not printed, or backed with paper, paperboard, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.2 mm: backed: covered or decorated with a character, design, fancy effect or pattern.ā This carried a 3.7% rate of duty.ā
Whatās new in the tariff classification game? āTariff classification has not changed very much since the introduction of the current tariff schedule in 1989,ā Larry explains. āThe big controversy at the moment is to what degree and under what circumstances should Customs or a reviewing court consider how a product is used after importation. The traditional rule is that Customs classifies merchandise in the condition in which it crosses the border.ā
Separate from classification, there are heated disputes ongoing over the legality of the various tariffs President Trump imposed. (Larryās too modest to tell you, but he is representing in a federal lawsuit a group of steel importers who didnāt get exemptions from the Trump administrationās high import tariffs on steel, alleging that the companies who did get the exemption got an unfair advantage.)
Yes, imports and tariffs are best thought of as one strategy among many for maximizing a companyās supply chain efficiencies. Doing that is, as they say, a thing.
Eric Greenberg can be reached at [email protected]. Or visit his firmās Web site at www.ericfgreenbergpc.com.
INFORMATIONAL ONLY, NOT LEGAL ADVICE.
