As the trade war between the US and China heats up, companies looking for ways to avoid or mitigate the additional tariffs the US may impose on virtually all imports from China – including apparel and footwear – could turn to co-production.
Earlier this week the US released a list of $300bn worth of Chinese imports that will be hit by additional tariffs of up to 25% on top of the regular rate of duty.
This would extend the ongoing Section 301 punitive tariffs to essentially all remaining imports from China, including all apparel, footwear, and manufactured textile products.
But as international trade law firm Sandler, Travis & Rosenberg points out, goods may move back and forth across borders multiple times before being completed and shipped to the US.
Indeed, apparel and textile producers may recall using outward processing programmes (OPPs) to shift the most important assembly or processing operations to a country other than China in order to change the country of origin of the finished goods for quota purposes.
The same rules and concepts used in OPPs apply for determining whether or not a good is of Chinese origin for Section 301 tariff purposes.
For example, it says, garments may be cut and subcomponents joined in China, parts may be shipped to a third country where the major parts are assembled or major seams are sewn, and the goods may return to China for embroidery, screen-printing, other types of finishing as well as packing and export to the US.
While the finished goods incorporate Chinese processing and materials, their country of origin may be the third country, which would exclude them from the Section 301 tariffs.
This co-production concept works for many different types of goods. There is a long and storied history in the case of apparel and textile products, with US Customs and Border Protection (CBP) having issued guidance and precedent on isolating the most important operations to determine country of origin for quota purposes.
Other products may not have similarly extensive prior guidance from CBP, but the concept still works. Nevertheless, each situation is unique and should be analysed on its own merits, and in some situations it may be prudent to seek a binding ruling from CBP.
Importers using co-production should keep thorough records to support the different types of processing that occurred inside and outside of China and the transfer of the goods and materials back and forth in order to respond to any CBP request to substantiate the origin of the goods.
ST&R is organising a webinar on 20 May on’ The Art of the Trade Deal: Top Strategies to Avoid or Mitigate Section 301 Tariffs.’ Click here for more information.