Tackling tariffs

U.S. companies trying to improve their bottom line should look closely at harmonized tariff schedules, according to Alexander Koff, Esq., a partner at Whiteford, Taylor & Preston who co-chairs the Baltimore-based law firm’s international practice. He offers these tips:

Read up on the U.S. harmonized tariff schedule. The U.S. International Trade Commission maintains this list of tariffs for goods made overseas and imported into the United States. Tariff schedules are harmonized among countries, which makes trading goods between the United States and foreign markets easier. To identify how much another country charges to import a particular good, check with the World Trade Organization (WTO), which maintains trade data for each member country.

Compare tariffs by country for a particular good. Tariffs can differ, sometimes significantly, depending on the country from which a good is imported; however, the United States may not treat any WTO member less favorably than another. The exceptions are for non-WTO members (which are generally charged higher tariffs) or those with which the United States has a free-trade agreement (which are generally charged lower tariffs). For example, imports of cheap lead crystal drinking glasses from a non-WTO member are assessed a 60% ad valorem rate (based on the value of the product) versus a 15% rate for a WTO member. Under a U.S. free-trade agreement, such imports could be duty free.

Check the good’s classification. Each good fits in the harmonized tariff schedule, depending on its qualities or characteristics. But a good may fit into another, lower-tariff category with some adjustment in packaging or production. For example, a company that imports lead crystal stemware glasses from most WTO countries pays a 14% tariff if the glasses are in category 7013.22.20 (valued over $1 but not over $3 each), whereas lead crystal stemware glasses in category 7013.22.30 (valued over $3 but not over $5 each) are charged a 7.3% tariff. Assuming the company imports 100,000 glasses annually, it will pay a $35,000 tariff on glasses valued at $2.50 each, but only $32,850 on glasses valued at $4.50. So the company pockets a 6% reduction in tariff payments to the government and an 80% increase in gross profit from the price increase.

Look for opportunities in countries with which the United States has free-trade agreements. Trade policy can lower or eliminate tariffs that affect individual industries when free-trade agreements are negotiated. The tariff changes can generate opportunities for companies interested in investing in overseas production plants or finding new suppliers. For example, a 2011 analysis of the then 14 free-trade agreements the United States had signed and implemented since 1995 (there are now 20 such agreements) found that after the United States and Jordan signed a 2001 free-trade agreement, the value of U.S. pharmaceutical imports from Jordan increased about 8,500%, from $235,000 in 2000 to $20.5 million in 2010. In the same period, overall U.S. pharmaceutical imports increased 200%.

Stay in touch with the Office of the U.S. Trade Representative. The agency, which has expertise in U.S. trade issues and is familiar with changes in trade policy, publishes weekly online newsletters and frequently updates its website (ustr.gov).

Talk to the legal department. Legal departments may keep a running list of trade policy cases that lower the tariffs an industry pays. Also, consider pursuing cases under Section 337 of the Tariff Act of 1930 (19 U.S.C. §1337), which can exclude a competitor’s product from the U.S. market when the goods are shown to infringe a valid U.S. intellectual property right.

—By Sabine Vollmer (svollmer@aicpa.org), a JofA senior editor.