Section 301 Tariff Duties have greatly impacted U.S. Companies since their inception by the Trump Administration in mid 2018, affecting an estimated $500 billion in imported goods from China into the United States.
This exponential increase in duties has left many companies scrambling for solutions to mitigate these China tariff duties. Reevaluating classifications and product designs or finding alternate sourcing could be a possible solution, but are often very complex and come at the extensive cost of supply chain and operational resources. However, there is an immediate solution to mitigate these tariff duties. Section 301 duties are drawback eligible.
What does that mean?
When a company claims drawback on duty-paid imports that are subsequently exported it allows them to collect 99% of the regular duty paid – in addition to Section 301 duties. Since duty drawback is retroactive, you can reach back and use duty-paid imports from 5 years ago in drawback claims – perfect for recouping previously paid Section 301 tariff duty. What makes duty drawback even more interesting is the use of substitution matching, which we cover extensively in recent duty drawback matching article.
Brief example...
Your company imports 100,000 KG of product from China and paid $500,000 in total duty
The 100,000 KG of product from China is sold domestically
You company also imports 300,000 KG of product with the same HTS from Australia and it was duty-free
The 300,000 KG of product from Australia is exported out of the United States
Since both products share the same HTS and let’s assume they qualify for substitution at the 8-digit HTS, you can use the Australia origin exports to claim drawback on the China origin duty-paid imports
Looking towards the future.
There have been numerous rounds of List exclusions implemented which has helped remove some HTS codes, but as of right now we do not see China Section 301 tariffs going anywhere anytime soon. Aside from strategizing long term supply chain solutions, you should have your Company’s duty drawback program viability thoroughly assessed. There are many unique recovery scenarios in duty drawback, so it is best to consult a duty drawback expert.
