Co-Production Can Help Ease Impact of Increased Tariffs on Goods from China

Wednesday, May 15, 2019

Sandler, Travis & Rosenberg Trade Report

In the ever-growing trade war between the U.S. and China, companies are looking for ways to avoid or mitigate the Section 301 additional tariffs the U.S. is or will soon be imposing on virtually all imports from China. One possible option is co-production.

Goods may move back and forth across borders multiple times before being completed and shipped to the U.S. Apparel and textile producers may recall using outward processing programs to shift the most important assembly or processing operations to a country other than China in order to change the country of origin of the finished goods for quota purposes. The same rules and concepts used in OPPs apply for determining whether or not a good is of Chinese origin for Section 301 tariff purposes.

For example, garments may be cut and subcomponents joined in China, parts may be shipped to a third country where the major parts are assembled or major seams are sewn, and the goods may return to China for embroidery, screen-printing, other types of finishing as well as packing and export to the U.S. While the finished goods incorporate Chinese processing and materials, their country of origin may be the third country, which would exclude them from the Section 301 tariffs.

This co-production concept works for many different types of goods. There is a long and storied history in the case of apparel and textile products, with U.S. Customs and Border Protection having issued guidance and precedent on isolating the most important operations to determine country of origin for quota purposes. Other products may not have similarly extensive prior guidance from CBP, but the concept still works. Nevertheless, each situation is unique and should be analyzed on its own merits, and in some situations it may be prudent to seek a binding ruling from CBP.

Importers using co-production should keep thorough records to support the different types of processing that occurred inside and outside of China and the transfer of the goods and materials back and forth in order to respond to any CBP request to substantiate the origin of the goods.

For assistance with setting up or analyzing co-production options, binding rulings, and guidance on recordkeeping, please contact Elise Shibles at (415) 490-1403.

Click here to register for ST&R’s May 20 webinar on other strategies to avoid or mitigate Section 301 tariffs.

© 2019, Sandler, Travis & Rosenberg, P.A. Originally published in the 05/15/19 issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.

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