US customs duties: has everything been said? No! We need to think outside the box

But what exactly are customs duties? They are taxes levied by a state on imported goods, serving as both a tool to protect domestic producers and a source of public revenue, but also (and above all!) an instrument of economic and trade policy.

The objective is simple: duties are imposed to prevent foreign production from becoming unfair competition. This is nothing new; it has been around since St. Matthew (patron saint of tax collectors!). To do this, however, it is necessary, in principle, to first carry out an economic analysis identifying local production, domestic market needs, import volumes, prices, etc. Then there is a contradictory, democratic legislative process that leads to a vote. For example, in the European Union, when additional duties such as anti-dumping or countervailing duties are to be introduced, an investigation lasting at least one year is required (and not just because decision-making takes longer with 27 members).

The Trump administration has greatly simplified the process… it’s bound to be faster! The principle of “most-favored-nation status” (same tariff rates for all trading partners) and WTO commitments are (very) far removed, which has caused chaos in international trade.

This situation in the US raises two questions from which we can draw clear lessons and concrete actions (this is where we are original!):

• From a geopolitical point of view: is it legitimate for tariffs to be set unilaterally, without any real economic analysis or justification related to dumping or unfair competition, but simply based on the origin of the products? [spoiler alert: not really…] The use of a presidential decree to establish them therefore raises questions about their legality. This issue has now been brought before the Supreme Court.

• From an internal business perspective: should we just put up with it, or wake up and take advantage of this situation to become stronger? Let’s start by “doing” before complaining: this situation should be seen as a real wake-up call. There are three areas that depend solely on us:

• • Area 1: Internal structuring

Customs issues, export control, and trade compliance are little known, neglected, and undervalued in France and, to a lesser extent, in the EU. In contrast, in the US, these issues are considered highly significant and strategic, and companies value the positions of Customs Manager and Trade Compliance Officer. We need to take inspiration from this, recruit and promote these roles, give them the resources and internal visibility they need, and understand that these tasks cut across all areas of the business. Next, we need to manage these issues with the right people on the one hand, but also with the right tools on the other: mapping customs flows and processes is an essential prerequisite. Then we need to train the teams, the experts of course, but also the entire company, which all too often suffers from gaps in customs knowledge because everyone sees it as an operational function: it is, of course, but it is also strategic and requires exchanges with the legal department, the finance department, etc.

• • Area 2: Mastering the basics

Firstly, it is necessary to master the classic triptych used to determine customs duties: customs codes (customs description of the product), customs value (taxable base), and origin (made in or preferential origin). However, it will also be necessary to address compliance, customs status, etc. These are complex but essential topics. In the US, for example, customs value is a real issue that many are currently working on, trying to minimize it (first sale mechanism), but this is highly regulated: it’s not open bar! So, the current reflex is often to see if it’s possible to use a lower customs value—by revising transfer pricing policy or using the highly regulated first sale mechanism—or to change the customs code or origin of the products. While these questions are legitimate, they should not be approached solely from an opportunistic angle, but rather integrated into a broader approach to securing and optimizing customs practices.

• • Area 3: Contractual relationships

There are contracts for everything in a company except customs: customs clauses with customers or suppliers are very poor, even though the data is crucial and the responsibilities significant. Similarly, delegation to a customs representative is not always (or even ever) governed by a specific representation contract, which would nevertheless allow for a more balanced and protective relationship than that provided for by a simple, often outdated general mandate.

Finally, after the COVID crisis and the dramatic illustration of our dependence on certain Asian sourcing countries, the situation in the US also shows that it is time to seriously consider relocating all or part of our production chains.

So, yes, it is essential to secure shipments and imports to the United States, but it would be simplistic and unproductive to stick to this objective alone.

What needs to be done: rethink your contractual relationships with your customs representatives, structure your teams by investing in training and recruitment, and ensure the accuracy of customs codes, origin, and declared value. These are small mistakes that can be costly, while optimizing them can pay off big time…

Ultimately, if you want to optimize your operations and take advantage of the legal tools available, the first step is to consolidate your internal organization to ensure solid security.

Think differently, turn this constraint into a strength. 

 For more information: LightHouse LHLF – Law Firm