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Duty Savings Under Miscellaneous Tariff Bill Could be as High as $500K

For all the worry over rising costs, most apparel companies still aren’t taking advantage of all the duty savings at hand—like the Miscellaneous Tariff Bill.

Speaking on a panel at a recent global trade event in New York hosted by Thompson Reuters and law firm Baker & McKenzie, Baker & McKenzie associate John Foote said the potential duty savings under this bill could be huge.

Passed as part of the American Manufacturing Competitiveness Act, the MTB isn’t new but resurfacing under the International Trade Commission as opposed to previously when it required companies to petition a legislator for the duty savings.

With the MTB, companies importing a product—whether an input or a finished good—that either isn’t produced in the U.S. or not in sufficient quantities to fulfill sourcing requirements, can petition the ITC to suspend or reduce the duties on that product.

“The potential duty savings is $500, 000 per product per year, so that’s a pretty significant benefit,” Foote said.

Starting Oct. 15, companies can file petitions with the ITC (how-to’s here) for these savings, which is essentially money the government is willing to forego in an effort to boost American competitiveness.

How do you know whether you should file a petition? Foote said there are seven key questions companies should ask themselves:

  1. Have you defined the article for which tariff suspension/reduction is being sought as specifically/narrowly as possible?
  2. Is an identical article manufactured by a domestic producer (i.e., is a company already making the same thing domestically)? This would not include a U.S. company which imports a foreign article and distributes it in the United States. The U.S. company would need to manufacture the identical article in the United States for this to apply. (If the articles are truly identical, there may be no cause for a petition, and thus, likely no forthcoming duty reduction.)
  3. Is a comparable/directly competitive article manufactured by a domestic producer?
    1. If yes, identify the differences between the article at issue and the domestic article? Any differences other than price would be relevant (e.g., form, function, fit, etc.).
    2. If meaningful differences exist, consider incorporating those differences in the product description in question 1.
  4. For component parts, have you sourced the article involved from a domestic producer in the past?
    1. If yes, why did you switch to an imported article (e.g., U.S. producer went out of business, price considerations, not available in sufficient quantities, etc.)?
    2. If not, proceed to question 5.
  5. Do any of the “domestic producers” have overseas affiliates? If so, how do you know the domestic articles are produced in the United States?
  6. Have you ever issued a RFQ for this article and not received any domestic bids, or otherwise solicited domestic producers without success?
  7. If there is currently no domestic production of the article involved, are there any U.S. companies who could produce the articles involved? If so, why are those entities not doing so now?

The line of questioning should help inform decisions to move forward with a petition or not, but as Foote said plainly, “The strategy is you want to define your products very narrowly. You want to define them so narrowly that you’re the only one that can take advantage of it.”

A petition would only be granted if the ITC concludes that the revenue impact per product per year is $500,000 or less. If a duty suspension isn’t in order because it would result in a loss in would-be-earned duties that’s higher than $500,000, the ITC might instead consider a duty reduction—which either way, could be worthwhile savings for companies.

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The government won’t cut companies off mid-year if they’ve already started saving upward of the $500,000, Foote explained, but that excess could come back to bite when it becomes evident that the savings was in excess of what it should have been.

Because these things all have a timeline, approved petitions under the MTB won’t likely take effect until late summer to early fall 2017, Foote said.

Companies will be able to submit petitions until Dec. 14, 2016, provided all other parts of the process happen when and as they are expected to. After allowing for comments on petitions and time for review, the ITC might have a final report in to Congress sometime between mid-July and mid-August 2017, and then Congress will have time to say “yay” or “nay.”

“Because this has moved to the ITC and no longer requires getting individually sponsored legistlation, we expect that this will be significantly more subscribed than it has been in the past. It may actually be oversubscribed,” Foote explained, adding that the ITC has acknowledged this fact and they may not act on every petition received. “So definitely time is of the essence if you want to jump on this, getting those applications in ahead of the time frame will be critical.”