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'Tariff engineering' and other ways seafood companies are dealing with China tariffs

Seafood companies will have to get creative to avoid tariffs, experts say.

The US tariffs imposed just after midnight Sept. 24 on $200 billion (€170 billion) worth of imports from China have US businesses scrambling to understand their options for handling the added expense.

There are a number of moves seafood importers in particular should consider to address not only this current round of 10 percent tariffs but the impending round of 25 percent tariffs planned for the first of the new year.

Rob Hallion, president of Massachusetts-based Crocker & Winsor, told IntraFish there is tremendous unease for importers like him who don't have the margins to cover the additional costs since the tariffs took effect. That cost will be passed on to the consumer soon, he said.

"These effects will take some time to work through the system," he said. "Most of us are not bringing in a container, selling it and having it immediately sold. I have some customs bills that are a lot higher than I’m used to, and those are payable right now. But for most of us that are importers, cash flow demands for the remainder of the year will be a consideration."

The full-line frozen seafood company has built a business in China over the past 20 years sourcing tilapia, shrimp, squid and crab meat from the country.

The cost difference in products he imports from China is considerable and has shot up dramatically. Before the tariffs his fees added up to a little under $500 (€434) per container. Today he said that's up to $10,000 (€8,683) per container, and that he imports from China at least 20 business days of each month.

How do tariffs work?

Products coming into the United States from China are evaluated by US Customs and Border Protection (CBP) upon entry. That means the tariffs are assessed upon the arrival of the cargo in the United States, not when they were ordered or when they departed the foreign country destined to the United States.

The importer is the one who pays the 10 percent duty on any product included in the final list of products targeted by the new tariffs, or the product cannot enter the United States.

For seafood companies the new 10 percent tariff rate will come on top of a harbor maintenance fee, which is 0.125 percent of the value of the commercial cargo shipped through identified ports. Companies are also charged a merchandise processing fee 0.3464 percent of the value of what's being imported, based on the value of the merchandise being imported, not including duty, freight, and insurance charges. The maximum amount that can be charged for a merchandise fee is $485 (€420).

Signing up for an Automated Clearing House (ACH) account with CPB is what Amy Magnus, president of National Customs Brokers and Forwarders Association of America (NCBFAA), told IntraFish is the first thing seafood companies should look to do to ease the burden of the new costs.

"If they don’t, either the broker has to pay on their behalf and bill the client, which is not a preferred method with high rates of duty, or a client can write a check to customs and we can manually carry it to a customs house," she said.

The ACH option allows companies to pay border tariff fees, including the new ones, directly to CPB electronically rather than having a broker do it for them.

She said it takes about two weeks to get the application approved. Any company with a US bank or if it is a non-resident importer, a foreign bank with a US presence, is eligible for the account.

Once any cargo crosses the US border with products that are subject to tariffs, those fees have to be paid 10 days following that crossing, whether or not a client has an ACH account.

That's unless a company has a monthly periodic statement. It allows companies to pay border tariffs up to 45 days after cargo crosses the US border, which gives them time to ensure the funds are in their accounts. That's what Magnus advises for her clients once they are approved for ACH payments.

Crocker & Winsor's Hallion told IntraFish his company recently switched from having a broker handle his transactions to signing up for an Automated Clearing House (ACH) with the Customs and Border Protection (CBP), citing the extended timeline it gives him to pay these new fees.

Magnus said she is also reviewing customs bonds with companies to see if they are adequate--these are bonds the CPB requires as collateral if the importer is unable to pay dues.

"We encourage importers to look over the past year and calculate what their bond should be going forward," she said, noting it could rise for some.

She is also recommending that companies look at how their products are classified to make sure they're not costing more than they should or vice versa.

Companies may be able to remove their product from a tariff list through "tariff engineering" with the right legal advice, she said. "It's also perfectly legal to change a product in some way that will change classification. To re-engineer a product and make it a completely different product."

One way to do that is to change the source origin for a product in a substantial enough way that it would no longer be from China.

"We would refer a client to an expert for that work," she said.

Can I get my product off a tariff list?

John Freed, an international trade attorney who works with seafood companies, told IntraFish it will be difficult for seafood companies to remove their products from the tariff list at this point, even if US Customs and Border Protection (CBP) provides a way for companies to apply for an exclusion, which it hasn't so far.

"I don't know that it really works for seafood," he said. "There could be an exclusion for industrial products where there are only a few producers in the world --for industries like automotive and aerospace, where a whole supply chain has strict qualification processes for all of the vendors."

Freed said one snag seafood companies will have with the tariff is there is no way to get a refund for products already charged the duty if it is later rescinded.

Changing the classification of a product or sourcing it from another country entirely is not an easy solution for importers.

Hallion said it would be difficult for him to move his supply chain to Vietnam because the country just can't match China's transportation infrastructure and seafood-based workforce.

We’ve built a business over the past 20 years in China. We would not be here in the form we’re in today without China," he said. "These things are very hard to pick up and move."

Peter Quinter, a longtime Florida-based customs and international trade lawyer representing seafood importers, warehouses, and transportation companies, told IntraFish he is working with clients to review supply chains, tariff classifications and country of origins on products facing the tariffs.

He has a simple message for seafood industry members unhappy with the Trump-declared trade war with China.

"Vote Democrat," he said as one solution to the tariffs. "Nobody wins a trade war. In the end, China is going to do better than the United states."

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