A Legal Solution to Chinese Tariffs

A Legal Solution to Chinese Tariffs
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In today’s business world it is not easy being a company that relies on Chinese imports. Chinese tariffs have dramatically increased in the past few years and remarkably so in the past year due to President Trump’s trade-war tariffs. These increased costs are putting immense pressure on many e-commerce companies. The good news is that innovative companies have found a legal solution to Chinese tariffs.

Rapidly Increasing Tariffs

When the Trump administration came into office, it was made clear that the U.S. would impose heavy tariffs on goods from China. This promise has been made true and many e-commerce companies are feeling the negative effects. According to the Peterson Institute for International Economics, the average tariff rate on imported Chinese products has gone from 3.1% in January of 2018 to 19.3% in March 2020[1]. That’s a marked increase and one that many businesses were finding unsustainable.

The Creative Solution

Many smart businesses decided not to tolerate the rapidly inflating tariffs. Instead, they aligned themselves with fulfillment centers outside of the U.S. that can facilitate shipping directly to US customers while avoiding the Chinese tariffs.

This is all legal under Section 321 exemptions and Canada has proven to be the country making this exemption worthwhile.

Companies are having their Chinese goods imported to fulfillment centers located in Canada to avoid high U.S. tariffs. Then, Section 321 exempts shipments valued at $800 or less from paying duty. These are limited to a single shipment and importer each day.  The maximum amount that could be shipped was raised from $200 to $800 in February 2016. This large increase made these duty-free exemptions a much more viable option for companies.

U.S. and Canadian trade lawyers attest to the legality of the procedure. “If you import Chinese merchandise into Canada and send it in to the U.S. in orders of $800 or less, you can do it without entry or payment of duty. It’s legal,” said New York-based trade lawyer John Peterson.

Many e-commerce companies are already taking advantage of this. Customs and Border Protection (CBP) confirms that every day nearly 2 million shipments are released into the U.S. under Section 321. This intelligent solution helps e-commerce companies rise above competitors.

However, Country of Origin laws still apply. A shipment of clothing from China cannot be relabeled Made in Canada simply because they filtered through that country first.

How to Capitalize on Section 321 Exemptions

When capitalizing on Section 321, companies can eliminate 100% of their duty costs without sacrificing delivery time or costs. Fulfillment and logistic companies saw this need and worked to provide the service required.

Companies soon realized the opportunity that Section 321 presented. In 2018, Stalco began offering a service that allows U.S. firms to redirect shipments of Chinese goods to Canada. They then fulfill the orders, shipping them to individual consumers in the United States – and facilities the return of any duty that Canada collected.

“We saw the potential, with all this talk about China and tariffs,” said Steven Page, president of Stalco. “Small businesses are getting killed,” Page added[2].

Stalco and other Canadian fulfillment companies ensure that the products are eligible for Section 321 clearance. The shipments usually arrive at the Port of Vancouver and are broken down into smaller groups before being shipped to the US by truck. The fulfillment companies use major carriers like USPS, DHL, and UPS so clients get the same delivery services, costs, and transit times as a U.S. based fulfillment company.

Canada’s position next to the U.S. border means that U.S. firms do not have to sacrifice delivery time when shipping with Canadian fulfillment companies.

Logistic businesses want to help businesses save money on import fees and working with a partner in the destination country helps ensure that local and federal regulations are followed.  At the end of the day, e-commerce companies have two options: accept the high tariff rates on Chinese imports or find a way around them. The companies that do the latter will have much more success in today’s e-commerce world.

[1] https://www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart

[2] https://s29755.pcdn.co/news/firm-helps-u-s-companies-bypass-china-tariffs-via-canada

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