06/3/19 - Jose Burciaga
The immigration issues along the southern border have been an ongoing challenge for many years and most recently has become one of the most politically charged issues ever. Border security has dominated the news beginning with family separations back in early 2018 and the 35-day government shut down back in December 2018 and January 2019. In March of this year border wait times exploded as the government shifted a number of U.S. Customs officers to border security roles and there were very real threats on whether the U.S. government might actually close the border altogether. Now we are facing a brand-new challenge in the form of additional import duties on all product imports from Mexico.
Last week on Thursday, President Trump announced new import duties beginning on June 10 with escalated increases over the next 4 months. The rates begin at 5% and increase to a high of 25%. While we do not yet have all the details, we do expect a formal government notice through the Federal Register anytime now.
WHAT WE KNOW:
President Trump is essentially demanding that the Mexican Government stop and deter illegal immigrants from Central American Countries from entering and passing through Mexico en route to the United States. If Mexico does not take appropriate action (“substantially stops the illegal inflow of aliens coming through its territory”) the United States will increase import duties on all items from Mexico beginning on June 10. Duties will continue to escalate from 5% in June to a fixed high of 25% by October 1.
5% from June 10 to June 30
10% from July 1 to July 31
15% from August 1 to August 31
20% from September 1 through September 30
25% from October 1 with no end date
These duties are in addition to any other import duties which may be owed on current imports. Goods eligible for NAFTA (duty free) will be subject to these additional duties, with no planned exemptions.
IS THIS LEGAL AND DOES THE PRESIDENT HAVE THE AUTHORITY
Based on our reading of the law (International Emergency Economic Powers Act) it does appear that the President has the legal authority to immediately implement these additional duties and his actions do not require prior authorization from Congress.
WHAT WE DON’T KNOW:
We do not yet know whether the import duties will only apply to Mexico origin goods or whether the duties apply to all imports from Mexico regardless of origin. For example, U.S. goods returned from Mexico are generally exempt from duties. However, we are not certain that this will continue to be the case with these new duties. We also do not know whether these additional duties will be eligible for duty drawback if the imported goods are subsequently exported from the United States. Finally, we also do not know if in-bond shipments (goods simply passing through the United States) are exempt from these new duties (generally they are), however these are extraordinary times, and nothing is certain at this point.
RECOMMENDED NEXT STEPS:
First, assume nothing. Plan for the worst and hope for the best. The U.S. government has clearly demonstrated their willingness to use increasing import duties to accomplish their objectives. 12 short months ago the Federal Government imposed additional duties on China imports, those duties are now as high as 25% on most items and may soon grow to all imports from China as early as this July.
Second, validate and verify your dutiable import values. Remember lower values represent lower duties.
Third, validate and verify your country of origin. At this point we are hopeful that these new duties will only apply to items with country of origin Mexico and not to items with other country of origin.
Fourth, re-evaluate your supply chain and avoid imports from Mexico for items which are subsequently exported from the United States. Consider shipping those items directly from Mexico and not into or possibly even through the United States.
Fifth, as a longer-term strategy consider opportunities for resourcing or manufacturing items outside of Mexico.
Sixth, watch the news, talk with your U.S. Customs Broker and Trade Advisors, stay educated and keep management informed. This is a very fast-moving issue and we expect things to change quickly.
Steven B. Zisser is an attorney based in San Diego (Otay Mesa) specializing exclusively in U.S. Import and Export Law. He is one of the nation’s leading experts on import/export rules and regulations, including HTS Classification, Valuation, Country of Origin and Free Trade Agreements. He is actively supporting hundreds of companies to effectively manage and strategically plan for this new and ever-changing import/export environment. If you have any questions concerning this article you can reach Steve at [email protected]