Fashion Intel & Analysis

Special Update on the Impact of 301 Duties on Textile and Apparel Imports

Mitigation options based on the rules of origin

Prepared by John Pellegrini, McGuire Woods, USFIA Customs Counsel

The potential imposition of additional duties on textiles and apparel from China has led to questions on the means available to avoid or mitigate the duties.

The most obvious is to change the country of origin.     

As a brief reminder for USFIA members, following is a review of the basic principles for determining the origin of an apparel or textile item. It is not a complete review of all of the variations and exceptions found in the regulations or in the hundreds of CBP rulings that address origin.  If you contemplate processing that deviates in any respect from the basic rules outlined below, you are well advised to obtain a ruling. 

If the additional tariffs are imposed, we expect that CBP will pay close attention to the origin of textile and apparel products exported from countries other than China, particularly if the importer previously declared China as the origin for most of its products.

Query, will CBP reinstitute the textile declaration? 

Let USFIA know if you have questions about the requirements for country of origin and if you would like USFIA to schedule a webinar to go into more detail about these issues.  

Basic principles to determine the country of origin

The basic rule of origin for apparel, which consists of two or more component parts, is that assembly confers origin provided that the apparel is wholly assembled in a single country, territory, or insular possession.  Be careful – partial assembly in China is a problem.  

A second basic rule is that the country of origin of knit-to-shape products is the country in which the major parts are knitted or crocheted directly to the shape used in the finished product. 

A third basic rule is that the origin of certain articles made from fabric is the country in which the fabric is produced.  These articles include handkerchiefs, shawls, scarves mufflers, bed, table, toilet and kitchen linens, curtains, drapes, bedspreads, comforters, pillows and cushions, among other articles.

These principles are set out in a statue, 19 USC §3592, and are expressed in a set of tariff change rules found in Section 102.21 of the Customs Regulations.

The Office of the U.S. Trade Representative has posted the announcement that will begin the process to consider imposing additional tariffs on "essentially all products" imported from China. This includes clothing, home textiles and footwear, as well as many other consumer products that may be imported by USFIA members. The notice says that the Administration will consider an additional duty of "up to 25 percent."

There will be a public hearing on June 17th and we anticipate there will be more than one day of testimony. USFIA will file comments and request to testify.

The migrant crisis on the border is not abating, according to Executive Director Tom Overacker at U.S. Customs and Border Protection (CBP). On today’s operational update call, Overacker reported CBP plans to position an additional 186 officers from northern borders, airports, and seaports at the southwest border to assist with border patrol. As officers return to the ports of entry there has been considerable decrease in cargo wait times. However, there are still challenges and daily fluctuations in wait times. While El Paso and Otay Mesa see significant improvements, Hidalgo/Pharr continues to struggle. Overacker says CBP is aware of the persistent issues with cargo wait time and is trying to minimize the impact to the import/export community. 

The U.S.-China trade talks continue today.  There remains hope that the two sides will come together with an agreement.  If not, we will be ready to file for exclusions to the duties on key products in Tranche 3, and also get ready to battle against the imposition of additional duties on apparel, home textiles and footwear.  In a series of tweets this morning, President Trump suggests that he is already planning what to do with the money raised by higher duties on Chinese imports.  "Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do." 

CBP moved quickly to find a solution to the programming issue that meant importers would be charged the 25% 301 tariff even though their goods were shipped before May 10th.  In an updated CSMS message this morning, CBP has created a new Chapter 99 HTS number for those products that are covered by Tranche 3 of the 301 duties that are imported after May 10th, and were exported from China before May 10th.  In the notice CBP also adds the requirement that those imports must be "entered for consumption, or withdrawn from warehouse for consumption, by June 1, 2019." Here is the link to the CSMS message. 

Customs and Border Protection just released the CSMS message with updated information for all entries that are covered by the increase in Section 301 tariffs.  While the increased tariffs will be based on the date of export from China, and CBP confirms that, at least in the short-term CBP will be applying the higher tariff of 25%.  In the notice they explain how companies can get the excess payment refunded using Post Summary Correction, or that companies can delay filing entries until there is an update to the procedures.  The CSMS is available here.