Don’t evade tariffs, lawyer warns

International trade lawyer Rob Pisani (photo, above) offered predictable advice to importers looking for legal ways to avoid paying high tariffs: “Consult an international trade lawyer.”

That’s not as self-serving as it sounds, Pisani told an audience at the American Home Furnishings Alliance Logistics Conference in Wilmington, N.C., June 18. Pisani, a partner at Pisani & Roll LLP in Washington, D.C., said he plans to retire soon. But he cautioned that the risks of making mistakes speak to the need for expert counsel.

“Merely shipping China goods from a third country could land you in jail,” Pisani said dramatically. “I would definitely steer clear of thinking you can just ship through a third country.”

Ship through Vietnam? Don’t try it!

Pisani was speaking just days after Vietnam reported it had discovered “dozens of fake product-origin certificates and illegal transfers by companies trying to sidestep U.S. tariffs on everything from agriculture to textiles and steel,” according to Bloomberg. The products, which originated in China, were bound for the U.S., which set 25 percent tariffs on broad categories of goods imported from China, but not from Vietnam.

The tariffs apply to “products of China,” Pisani said. U.S. Customs agents aren’t often fooled by exporters who try to ship through a third country. “Those are the ones that are going to get caught.” As a former Customs attorney, he would know. 

But there are ways to do it legally

Not that there aren’t legitimate ways to accomplish the same purpose, Pisani disclosed. For example, there’s the “first sale rule.” This would allow a Chinese exporter to sell goods to a buyer in Japan, who then would sell them to a purchaser in the U.S. “It’s perfectly legal if it’s set up right,” Pisani said. That means making sure the Japanese middleman takes legal possession of the goods before they are shipped to this country.

The law firm Sandler, Travis & Rosenberg notes that U.S. Customs and Border Patrol “has always had an uneasy relationship with the first sale rule and has attempted several times to eliminate it or make it more difficult to use. With these efforts having been unsuccessful, CBP has instead frequently turned its attention to ratcheting up efforts to verify that companies using this methodology are doing so properly.

“For example, said ST&R member Mark Tallo, in recent months CBP has focused on the proper transfer of title and risk of loss to ensure middleman companies are bona fide buyers and sellers of imported goods.” 

Engineering or evading? Be careful!

Pisani also spoke to the practice of engineering products in a high-tariff category so that they fall into a lower category. While it’s legal, there’s sometimes a fine line between engineering and evasion.

Ford avoided a 25 percent tariff on light trucks beginning in the 1960s by importing passenger vans, taxed at 2.5 percent, it produces overseas. Once the vehicles are onshore, Ford removes the seats and other portions of the interior, effectively turning them into light trucks.

Many other attempted work-arounds have been less successful, Pisani said, citing cases where the courts have found companies guilty of evasion rather than engineering.

As a rule of thumb, the product must be significantly changed to fit into a different category. “Simple or minimal assembly or processing generally does not count as substantial transformation,” Pisani said.

“What this should illustrate to you is how difficult (engineering) is,” he said.

When in doubt, call an expert

And it may be pointless if the U.S. raises tariffs on all products imported from China to the same 25 percent as President Donald Trump has threatened.

When in doubt, “call an expert,” Pisani repeated. “The consequences of evasion or nonsubstantial transformation can be pretty severe.”

AHFA’s Logistics Conference was well-attended.

Doug Clark writes the Policy Matters blog for the Home Furnishings Association.

Doug Clark

Doug is content manager and government relations staff member for the Home Furnishings Association. Please contact HFA with story ideas through our contact page.

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