Codes Let A Ship­per Duck Ta­riff

L'Opinion - - The Wall Street & I'Opinion -

One day in June, se­ven months af­ter the U.S. im­po­sed stiff ta­riffs on ply­wood from Chi­na, a wood im­por­ter in Ore­gon got a call from a sup­plier as­king if he would like to get some Chi­nese ply­wood ta­riff-free.

How would that work, as­ked im­por­ter Da­vid Visse. The pro­ducts car­ry an iden­ti­fi­ca­tion code that is che­cked by U.S. Cus­toms agents.

“Don’t wor­ry about it,” Mr. Visse says the sup­plier told him. The ply­wood would be strip­ped of its Chi­nese mar­kings, and “we’ll ship it under some other code.”

Eve­ry pro­duct im­por­ted in­to the U.S. car­ries a 10-di­git de­si­gna­tion cal­led an HTS code, of which there are 18,927 in all. Like a taxo­no­mic ver­sion of Noah’s Ark, the code pro­vides a com­mon lan­guage to bridge dis­pa­rate mar­kets and iden­ti­fy pro­ducts in all their va­rie­ty.

In a world of in­crea­sing ta­riffs, the code has ano­ther func­tion: eva­ding those le­vies. The bu­si­ness of code-fud­ging is ex­pan­ding in step with ta­riff in­creases, un­der­mi­ning U.S. ef­forts to shield Ame­ri­can bu­si­ness from fo­rei­gn com­pe­ti­tion, ac­cor­ding to im­por­ters, cus­toms of­fi­cials, trade at­tor­neys and ship­ping bro­kers.

As trade conflict grows bet­ween the two lar­gest eco­no­mies, these pro­fes­sio­nals say, code mis­clas­si­fi­ca­tion is star­ting to com­pete with trans­ship­ment – the re­rou­ting of goods through third coun­tries – as a way to duck ta­riffs.

Da­ta on mis­clas­si­fi­ca­tion are scarce. One in­di­ca­tion it is gro­wing can be seen in a sur­ging num­ber of U.S. Cus­toms ru­lings on ques­tio­nable ex­port clas­si­fi­ca­tions ori­gi­na­ting from Chi­na. There were 146 ru­lings in Ju­ly, near­ly triple the num­ber six months ear­lier.

U.S. Com­merce De­part­ment in­ves­ti­ga­tions of pos­sible dum­ping – sel­ling abroad at be­low the cost of pro­duc­tion at home – al­so are ri­sing, up 60 % last year.

“What comes along with dum­ping or­ders is of­ten a si­gni­fi­cant in­crease in the du­ty rate, and any­time you have that, there is much more in­cen­tive to change clas­si­fi­ca­tion,” said Bren­da Smith, exe­cu­tive as­sis­tant com­mis­sio­ner for U.S. Cus­toms and Bor­der Pro­tec­tion. The num­ber of U.S. ta­riff or­ders has grown 38 % in the past two years, on pro­ducts ran­ging from rub­ber bands to alu­mi­num sheets.

Af­ter Pre­sident Trump in March or­de­red 25 % le­vies on steel, Chi­nese steel plates were being im­por­ted co­ded as tur­bine parts, said Ti­mo­thy Bright­bill, a trade part­ner at law firm Wi­ley Rein LLP, which of­ten works on mis­clas­si­fi­ca­tion and tra­de­re­me­dy cases. In the first six months of 2018, im­ports of steel plates fell 11 %, year-over-year, while im­ports of “elec­tric-ge­ne­ra­ting sets,” a tur­bine clas­si­fi­ca­tion, soa­red 121 %.

Dia­mond saw blades im­por­ted from Chi­na are sub­ject to 82 % ta­riffs be­cause of a past dum-

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