Trade Experts Outline Challenges in Complying With Section 232 Tariffs on New Derivatives

That's because the scope of the tariffs is more expansive and requires more information than what has been typically available to importers, brokers told International Trade Today. Brokers and importers were also given little time to prepare. While Section 232 duty increases on steel and aluminum derivatives were announced in February (see 2503030054) and were given an effective date of March 12, the tariffs on steel and aluminum derivatives outside of Chapters 73 and 76 didn't have that same effective date -- until a federal notice published less than three hours before the midnight deadline indicated that the tariffs on the new derivatives also would have a March 12 effective date.

“The changes have a lot of moving parts for importers and brokers, and [it’s] a short period of time for importers to adjust their processes,” said Vince Iacopella, executive vice president for strategic growth and president of government and trade relations for Alba Wheels Up, a customs brokerage firm and freight forwarder. Iacopella’s firm serves companies in the electronics and semiconductor sectors, among other sectors.

While the tariff environment remains subject to rapid change, customs brokers must for now remain agile and adaptable, and importers might need to change their processes, he continued. That includes breaking out the value of the aluminum and steel, and “most people in the supply chain have not built mechanisms to separate that value.”

"People are still confused [about] what’s covered and what’s not because there are so many different buckets, if you will, of products,” Tom Gould, customs broker and CEO of Tom Gould Customs Consulting, told ITT.

The derivatives now include tariff subheadings outside of chapters 73 and 76 that cover both products that contain steel and aluminum, respectively, and those that don't. For those that do, the importer must determine the steel and aluminum content upon which tariffs are owed.

“It’s when you get to the derivative products where it gets more complicated for the broker, as well as for the importer and others involved,” Gould said. That’s because an importer might not have information from the supplier about the value and weight of the steel or aluminum portion of the derivative product.

For instance, when thinking about the value and weight of the metal portion of an umbrella versus the non-metal portions, “that’s not something that's normally reported back and forth among sellers of umbrellas and buyers of umbrellas, or manufacturers of umbrellas and sellers of umbrellas,” Gould said. “It’s not something that’s normally shared because it’s never needed to be shared, and in some cases, it might be considered proprietary information that companies may not want to share.”

He continued: “If you’re talking to an umbrella manufacturer, did the umbrella manufacturer buy the skeleton, or did they make it themselves? If the umbrella factory purchased the skeleton from an unrelated company, they can probably report the price that they pay for the skeleton. But if the umbrella factory made the skeleton and bought the textile and maybe bought or made the plastic and put it all together, then they’re going to have to potentially use one of the alternative valuation methods to determine the value of the skeleton. So that’s challenging.”

Still another challenge that brokers may come across is if the umbrella doesn’t even have any metal in it but it is still classified in the HTS category that will have the Section 232 applied to it, according to Gould.

“What happens is that umbrella is made with a plastic skeleton instead of a metal skeleton, and there’s no metal in it at all? That’s a challenge the brokers have right now, and they haven’t heard that anyone has figured out the answer,” Gould said. “The answer seems to be that they report zero for the value of the metal. But there seem to be some problems, and I’m not sure if it’s with the broker software or if it's with Customs’ ACE system, or both with reporting a zero value.”

Importers are concerned with the value of the metal and the weight of the metal. But “a lot of times, the person you’re buying a finished product from doesn’t even have that information,” Iacopella said. “They have to go downstream to lower tiers of the supply chain to get that information.”

“I think that importers and brokers need to start thinking about getting past that first tier” of suppliers, “whether it’s for UFLPA or for this,” Iacopella said, referring to the forced labor regulations. “Mapping that supply chain past that first tier, past the seller, is going to become more important in several different areas.”

Customs brokers meanwhile are also concerned about how the product gets reported -- which can get complicated because there may multiple classifications associated with the product, and there are specific rules about how to report multiple classifications.

“Let’s say, for example, that you have an umbrella that you’re importing from China that is a derivative steel product. That umbrella could be subject to the normal umbrella tariff, and it could be subject to the Section 301 tariff … and it can be subject to the new 20% IEEPA tariff, which is a third classification number, and it could be subject to the steel derivative tariff, which is actually two HTS numbers, one for the quantity and value of the umbrella less the steel, and one for the quantity and value of the steel,” Gould said. “So, now we have one product, one basic classification with all these other classifications associated with it, and the way the broker has to report it is they have to report those classification numbers on two lines on the entry summary, and the different numbers have to go in the right order, and the value and weight have to be associated with the correct numbers.”

This procedure also becomes challenging for CBP, Gould added, because the CBP ACE system doesn’t have the ability to validate that the calculation of the duty amount is correct when there are three or more HTS numbers on one entry summary line.

Companies that have been utilizing free trade agreements tend to be in a better position to get this kind of information since they needed this information to qualify their products for the free trade agreement, Gould said.

To cope with the changes, one silver lining that has resulted is more collaboration among the trade community, Gould and Iacopella said.

Iacopella has seen costing worksheets that are being passed around the industry to help through the changes.

“There’s a lot of collaboration going on to ensure that everybody’s on the same page. We’re all dealing with the same issues or related issues,” Gould said.

Iacopella said his firm is working with both internal and external experts, and “we’re putting effort into getting it right. We’re telling them that they’re going to have to identify this value on a derivative to break it out in order to pay a lower legal duty.”

As the trade community responds to these changes, Gould stressed that importers need to ensure that they get the information and processes correct because CBP “has been very clear” about enforcing the tariffs, which means that CBP could begin auditing the entries “when things settle down.”

“What that means is that if somebody gets it wrong today and they import umbrellas today, and they keep importing those umbrellas using the same process for the next six months and six months from now, Custom comes back and does a review or an audit and they find that the company didn’t do it right, they can get hit with duty and penalties on six months’ worth of imports,” Gould said. “So, the longer they wait to get it right when Customs does come knocking, the bigger the penalty is going to be if they got it wrong over a series of imports.”

CBP has not yet provided guidance on the issues raised by Gould and Iacopella. An agency spokesperson directed ITT to the several CSMS messages CBP has issued on the Section 232 tariffs.