U.S. Customs Compliance: Dutiability of Chinese Export Tariffs
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The Government of China (GOC) recently announced a list of export taxes
covering 148 products in 6 categories of coats, skirts, trousers, non-knitted
shirts, nightwear and underwear. The tax is generally set at an amount equal
to .2 - .5 Yuan per piece or per set; for example, the export tariff is
.3 Yuan for a woman’s cotton knit overcoat under Subheading 6102.20.00,
HTS. One Yuan is approximately U.S. $0.12 (12 cents). Therefore, in the
example provided, the export tax would increase the garment’s cost by approximately
U.S. $0.036 (3.6 cents).
In addition to the export tax paid to the GOC, the tax could lead to
additional (but minimal) duties owing U.S. Customs and Border Protection
(“U.S. Customs”). As an example, a coat from China under Subheading 6102.20.00,
HTSUS is dutiable at 15.9% ad valorem. Consequently, .3 Yuan (approximately
3.6 cents U.S.) would lead to additional duties owing U.S. Customs of approximately
Irrespective of the amount of any duties owing, importers have a strict
requirement to accurately declare the value of the goods at the time of
entry. Additionally, in the aggregate, small amounts owed on a per piece
basis could become significant for certain importers. Given that penalties
for undervaluation may be a multiple of the duties owed, importers affected
by this new export tariff must ensure they ascertain the export tariff’s
dutiable consequences upon importation into the United States or any other
affected country. For example, a company importing 500,000 dz. per year
(6 million units) could be faced with additional duties to U.S. Customs
of $25,000. Applying a revenue loss multiple of 4 for penalty purposes (gross
negligence), failure to declare these duties could require payment of $125,000
(i.e. duties plus penalties) plus attending administrative costs.
Communications with U.S. Customs Headquarters confirm that the issue
has been discussed, at least on an informal basis, but has not yet become
the subject of a formal ruling request. Moreover, many questions exist as
to whether the export tax will be dutiable primarily because of a lack of
information on the tariff’s administration by the Chinese authorities at
various ports. Who pays it? Who receives it? When it is paid? What are the
terms of sale? These questions raise a number of different scenarios leading
to different conclusions concerning the export tariff’s dutiable status.
If the export tariff is included in the FOB price of the goods paid to
the seller, then there is little doubt that it will be dutiable as part
of the “price actually paid or payable for the merchandise.” See 19 U.S.C.
1401a(b)(1). Alternatively, if the export tariff is paid to a third party
(the Chinese authorities) separate and apart from the goods, which are sold
to the buyer in an ex-factory transaction, then we believe strong authority
exists to render the export tariff non-dutiable. See Ruling HQ 547696 (May
18, 2001); HQ 542169 (September 18, 1980) (T.A.A. No. 6) (Quota payments
made by the buyer to a third party unrelated to the seller are not included
in dutiable value).
Greenberg Traurig is working with a number of importers to monitor the
administration of the export tariff and advise on its administration and
dutiable consequences. If any companies have questions concerning these
issues, please contact our Global Trade Practice.
This Alert was written by
Robert D. Stang, a Shareholder
in the Washington, D.C. office. Please contact any member of our Global
Trade Practice Group for more information.
© 2005 Greenberg Traurig
For more information, please review our Global Trade Practice description,
or feel free to contact one of our attorneys.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.