Codes Let A Shipper Duck Tariff
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-