Tariff Trends 2025: Expert Insights on the New U.S. Customs Landscape

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Anna Zajac

Good morning, everyone. Thank you for attending today's webinar. We're glad you could be here. My name is Anna Zajac, and I'm a senior manager in Flexport consulting practice. Before we begin, a couple housekeeping items. If you look at the sidebar to the right of your screen, you're going to, there's a, a chat box where you can submit questions. At the end of the presentation, we are going to have a q and a, and so we'll try to get through as many of them as possible at the end. In that same sidebar, you'll see a tab titled docs, and that's where you can download a copy of today's slide and other helpful resources that the team made available for you. Above your screen, you're gonna see a button to request an ACE analysis from Flexport. We will review what that means later in the, in the presentation, but, it's free. Click on it and, get your ACE analysis. Someone will reach out to you. And then finally, I'm thrilled to tell you that, this webinar will, earn, NEI, 1.5 NEI credits. So stick around to the end, and we'll share the code for accreditation. Okay. So on a brief legal note, keep in mind that all the information provided in the session is based on, the situation at the current time, and may not be customized to your specific business requirements. We always recommend that you reach out to Flexport, if you have specific questions, and we can, talk more about your facts and, situation and the options that are available to you. Joining me today are my colleagues, Rachel Dean, who, works in our trade advisory practice, and Tim who is the head of Flexport's drawback team. And there are many unsung heroes in the background, that made today's webinar, happen. So thank you to them too. So, today, the agenda, we're gonna walk through some of the latest IBA developments, some as of this morning, the section two thirty two tariff measures, changes to de minimis. We'll talk about ways to calculate customs duties lawful, ways to reduce customs duties lawfully and, specific duty drawback considerations, and then we'll end with the q and a. You can always if you ever have any questions, regarding those presentations, you can always contact flexport@customsbdatflexport.com. The BD means business development team, and someone will reach out to you. So, beginning with the IUPAA tariffs, many of you are aware, the, country specific rates were modified for 68 countries plus the EU countries, and those rates will go into effect on August 7. So, we'll go into that when we get to the next slide, provide a table of some of those rates. But if a country is, not specifically listed in the table, what that means is that we'll be we'll continue to be subject, goods from those countries will continue to be subject to 10% reciprocal tariff. China, reciprocal tariff will remain 10% until August 12 when it is scheduled to increase to 34% pursuant to the May executive order. Surprisingly, there is an in transit exception in this order. So goods that are loaded on a vessel, before, August 7, so before tomorrow And in transit and, there's a customs clearance required that need to be entered and cleared before October 5, will continue to be subject to a 10% receivable tariffs. As a reminder, air shipments and, rail shipments from Canada are ineligible. They, also, like feeder vessel shipments that are sent on feeder vessels are ineligible. The goods must be loaded on the mother vessel, and departed, for The US. There is a transshipment requirement in the order that, discusses if goods that are transships to evade for the purpose of evading the reciprocal tariffs in this order. Those goods will be subject to 40% plus any applicable fines and penalties, and they will not be subject to or eligible for mitigation like other customs penalty measures. We've had a number of clients reach out asking what does transhipment mean within the, context of this order. It's very clear from the language here that, transshipment is is, done for the purposes of evading, and it doesn't, it's not referring to the identity of a particular origin content used in a finished good for an individual component. As an example, Vietnam is a common transshipment port to The US from China. We know that, Vietnam exports more goods to The US than it has, production capacity. So be aware of that risk. I think a lot of companies are looking at Vietnam and other Southeast Asian company countries. So, it's really important that companies have boots on the ground and make sure that those suppliers have those production capabilities and are actually producing your products, if you're moving production outside of China. Listed be listed here is a snapshot of the country specific rates. We didn't have enough space for all of them and to make it look pretty, but we provided a quick snapshot here. One interesting point is the original, reciprocal tariff range was from 10 to 49%. And as you can see here, the top rate now is 41%. Specific callouts for European EU goods. The order implements a minimum tariff rate for EU goods of 15%. That will be reduced by the normal trade relations rates of duty, which are basically the column one duty rates, from most favored nation countries. So, if the, the column one duty rate is more than 15%, such as, like, footwear and many textile products, then the reciprocal tariff will be zeroed. So there'll be no additional reciprocal tariff on those goods. But if the duty rate is, free, then the reciprocal tariff rate will be 15%. Finally, if the column one duty rate is less than 15%, then you have to study up on your algebra. It'll be calculated, by taking the 15% the minimum tariff rate of 15% and subtracting the, normal trade, the column one duty rate, and that will tell you how much the reciprocal tariff rate is. So I guess quick and dirty back of the envelope calculation, you're gonna pay a minimum of 15%, reciprocal tariff on, sorry, total tariffs on EU goods, but it could be higher if the normal trade relations rate is higher. How, companies can manage tariffs? So, it's important to note that the, products identified in annex two of the original, order from April 2, will, that are excluded, remain in effect, including pharmaceutical, copper products, and semiconductors. Interesting is many of those products are covered by ongoing section two thirty two investigations, which we'll talk about in a later slide, but they're still exempt from the reciprocal tariffs. Another good one is products comprising at least 20% US originating content. For the content to qualify as US, it either needs to be wholly the product of The US, like grown or natural resource or all the, totally fabricated in The US. But if it does contain imported materials, those they need to go undergo a substantial transformation for the The US content to qualify. We're working with a number of companies, that do use US content in foreign goods. So, if you wanna implement this exception Hopefully, I'm back on. There are some documentation requirements, to consider, including providing information on the commercial invoice to enable your customer's broker to, correctly report the value, with the duty exemption code. So reach out to us if you have questions about that. And then, again, products covered by the section two thirty two tariffs remain exempt from the IUPO reciprocal tariffs. Moving on to The UK, a June 16 order implemented a 7.5% tariff rate quota that was reduced from 25% on automobiles from The UK, and that rate will apply in addition to the two and a half normal trade relations, rate of duty. Auto parts, will have reduced tariffs up to a max of 10%, including the normal trade relations rates of duty, but those auto parts have to be specifically intended or manufactured for UK automobiles. So you can't use them with your BMW or Mercedes. Steel and aluminum content, the it calls for the elimination of IEPO reciprocal tariffs on steel and aluminum content that fall under the World Trade Organization agreement on trade and civil aircraft, which would mainly affects aircraft and aircraft parts. Negotiations are currently underway for preferential term treatment for UK pharmaceuticals, but there is also an ongoing section two thirty two investigation. So, I I I think this, this would be limited to the extent that The US takes action under that order. And then there's some, aluminum and steel quotas that would call for, like, a lower tariff treatment depend for, certain quantities, for the in quota, quantities yet to be established. And then after that, they'd be subject to the normal 1025%. So they could take down for UK goods once a quota is established, with the corresponding rate. Stay tuned for more. For Canada. Alright. New developments. The 25% fentanyl tariff rate was increased to 35% on August 1. Remember, USMCA goods are exempt from these fentanyl tariffs, but, also, in order to qualify for that exemption, special rules apply under the nonpreferential rules for substantial transformation. So you need a substantial transformation and USMCA to qualify for this exemption. So two part test or two different tests. The reciprocal tariff exemption on Canada origin goods, remains in effect. And here again, you see that transshipment rule. If you are trying to evade paying duties under this order, you will face additional tariffs of 40%, and potentially customs penalties with no mitigation allowed. For Mexico, you may have heard, some ongoing commentary. The negotiations are currently underway. The US and Mexico implemented a, a stay for ninety days to allow for additional time to negotiate. So goods from Mexico will continue to be subject to that 25% fentanyl tariff, 25% tariffs on cars, and 50% tariffs on steel, aluminum, and copper. And China remains subject to that 20% AIPA fentanyl order. Moving on to Brazil, US declared a national emergency in connection with Brazil's policies, and practices and actions, which, the US government determined, present a a threat to The US. So under the order effective August 6, articles of Brazil will be subject to 40% IEPA tariffs. We're calling these secondary tariffs. Currently, we have IEPA reciprocal tariffs, fentanyl tariffs, and now there are these IEPA secondary tariffs, that will be some so we'll apply the rate of 40%. There are specific exclusions in the annex of the order that covers specific, products and energy products, etcetera. Section, goods subject to section two thirty two are, will remain exempt from these I equal tariffs as well. And in terms of the stacking, the 10%, country specific rate for Brazil will apply in addition to the 40% rate. There is an in transit exception here as well for goods already on their final mode of transportation to The US prior to August 6. So the date of this order is one date or one day earlier than the other, reciprocal tariff order, and that's why it's August 6. We originally wanted to call this slide, continued uncertainty, and boy, will we write. On April 2, the president, issued an executive order on, to implement imposing tariffs of 25% on goods that on countries that import goods, oil from Venezuela. No action has been taken to implement that those tariff measures yet. However, Trump tweeted on August 4. You can see here that, his complaint about India buying Russian oil. And as of this morning, he issued an executive order imposing, these secondary IETA tariffs to products, of India at a rate of 25. So assuming that the tariffs follow the same fact pattern as this the, secondary Brazil tariffs, then we would expect these tariffs to apply in addition to the reciprocal tariffs the country specific reciprocal tariff rate. And at this point, I'm gonna turn over to Rachel Dean.

Rachel Dean

Well, first call out, wow, last week was really, really busy. You went through a lot of information on reciprocal tariffs. And along those lines of it being really busy last week, there were also some announcements on the section two thirty two tariffs. And go to the next slide here. The big one being that it was official. There are going to be the section two thirty two tariffs on copper at 50%. A big call out on that is that the proclamation was made on July 30, and it was effective August 1 at 50% on duties. Now similar to the aluminum and steel tariffs, it is only the 50% additional duty under two thirty two is attributable to the copper content. So it's really important to take your time and make sure that you are valuing the the copper properly for these entries, that they are subject to the two thirty two duties. In the proclamation and in the CSMS CSMS on these additional duties, it's calling out that you have to have documentation to substantiate the value that you're attributing to the copper. So don't just look at your invoice and think, hey. About 50% of it's copper, you're gonna need bills of material, POs, something to say to US Customs if they do come back with the CF 28 that, yes, we did our due diligence. This is the value that's attributable to the copper. So make sure that you're working with your customs broker or your trade consultant to make sure that you have all your ducks in a row when you're claiming the value for your your copper on these entries. This list, like, it is similar to the steel and aluminum in that you can break out the value of the copper to to attribute the two thirty two, But it is a smaller list of items that are covered by the copper section two thirty two duties, mostly chapter 74. But that being stated, the first headings of that chapter, seventy four zero one through seventy four zero five, are excluded. And there's only a few items outside of chapter at least right now. Again, lots of things changing very, very quickly this morning even. But, there are only a few items outside of chapter 74 that are under the copper two thirty two duties. So and another note, we know that section two thirty two duties don't stack on top of the reciprocal duties. So when we have multiple two thirty two in play, we have to be very careful. So in this case, if you have an item that could fall under the copper or the automobile and automobile parts section two thirty two duties, you're going to claim the automobile section two thirty two and then the copper is excluded. So next slide. Here are all of the current Section two thirty two investigations. There have been nine new investigations since January. The Steel, Aluminum, and Automobile and Automobile Part two thirty two investigations were actually initiated in the first Trump administration. So

Anna Zajac

when we look

Rachel Dean

at the timelines, we know that it can take up to two hundred and seventy days for commerce to go through the investigation, and over report to cut to the president and the president to make a determination. However, with the copper, the hundred and forty two days, that's a quick turnaround. And something that Anna had brought up earlier about the reciprocal tariffs and one of the proclamations on that is there are several commodities that have been proactively or preemptively excluded from the reciprocal tariffs. A lot of them coincide with this list even if they haven't had a section two thirty two duty associated with them yet. On that note, maybe you're getting a temporary reprieve from duties on those commodities, but I wouldn't count on it lasting necessarily. Now if you are an importer of any of these items, I want to kind of bring it to your attention that these are items that are not just issues within the realm of section two thirty two. A lot of these overlap with, items that are being investigated for anti dumping or countervailing duties. They are also commodities that are of concern when we talk about forced labor. So don't just focus on one area trying to be compliant, making sure you get the valuation correct with your copper to make sure you're claiming the correct duty rate and all that. Obviously, that's super important, but you wanna make sure that you're looking at the whole picture because there's a lot of things that can be coming in and affecting these commodities, and you wanna make sure that you don't bring something in and then all of a sudden get hit with an invoice for hundreds of thousands of dollars in in something that you missed. Let's go to the next slide. Again, last week was a very busy week. There were also changes to de minimis. I feel like de minimis has been discussed for so long, and it's been such an issue, I mean, prior to January even, discussing on how to limit it or or whatever. So we know that China and Hong Kong were already removed from De Minimis previously, but last week in the executive order, we now have a date where it's going to end for all of the countries. So, August 29, it is the minimus is is over. There is a very limited exclusion under 50 USC 17 o two. It's very, very limited. Don't think about looking at it like, hey. I'm gonna bring in all my my widgets under donations of food clothing medicine. That's that's not gonna work. So, it is there, but it's very, very limited. There's also a little bit of a caveat around, international postal systems. There's gonna be challenges with them switching over to this. So the idea is that it's going to have a six month period where they have this limited application of these duties. So if you have an IEPRA Reciprocal Tariff Freight of greater than 16%, you'll have a flat rate duty per item of $80. And if you look at that table, if it's 16 to 25%, it's gonna be a flat 160, duties on that item. Or if you have a IEPA tariff rate of over 25%, then it'd be $200 that you would have to pay in duties for that. Now interestingly enough, like, the executive order last week ended it, put a date on it for August 29. It previously been mentioned in the big beautiful bill in July 4 that it was going to end in 2027. Now, also, as part of the bill that had been previously passed is a call out for a penalty if you evade or try to get around duties by claiming de minimis with a 5,010 thousand penalty depending on if it's a first or second offense. With all these changes in reciprocal tariffs, Fentanyl, two thirty two, there's a lot of areas that even people are trying to be very, very compliant can make the mistake. However, with this heightened difficulty around importing and getting the correct classifications and getting the correct duty rates and and everything in place, there's also heightened scrutiny. And in a lot of these orders, there's mentioning of penalties and they're reiterating the fact that you can get on top of penalties, you can also get, criminal liability. So and the copper order specifically mentioned getting it correct or there's penalties or potential for criminal liability. So, with the that note because she doesn't wanna talk about criminal liability and penalties. You need to work with your trade consultants. You need to work with your customs broker. Make sure that you're doing everything correctly. The penalties for negligence, it's two times the loss of revenue or 20% of the merchandise value. For gross negligence, it's four times the loss of revenue or 40% of the merchandise value. And for fraud, it can be up to the full value of imported merchandise. Now if you're talking about gross negligence and we're talking about four times the the loss of revenue, When we're talking about 50% in duty, it could be a higher penalty if it's just gross negligence. So make sure that you're doing everything that you can, checking the news, checking up on updates every day because we know that it's changing that quickly, and it's affecting so many areas of of our businesses of your businesses and your imports. So on that note, I'd like to turn things back over to Anna so she can talk to you about how to do things compliantly and how to kind of navigate the tuning environment to maximize or minimize your your duty liability. Hi, Anna. Thanks, Rachel.

Anna Zajac

Yeah. One one thing, just to kinda add to what Rachel said here is merely, transmitting incorrect information to customs is a separate violation. So, be aware of that. K. So, moving to the next section. I think they're they're testing me because they changed the name of my my slide. But, really here, the three, pillars of compliance are value classification and country of origin. They're also the levers for, reducing customs. They control duty liability and, they're the levers for reducing customs, duties. So we've worked with a lot of companies to look at value, whether it's, implementing for sale rule, program to to clear the value for an earlier sale that was for export to The US, or we've worked with clients to evaluate whether there's opportunities to decouple specific cost elements from the price paid for goods. And we have another slide on that topic, so I won't go into it here. Transfer pricing policies in the current environment, I would expect that companies, involved in intercompany sales are looking at their, profitability test to see whether they need to make adjustments. It's important to know that it it needs to be a formal fixed price formula and backing into it only based on, a percentage a profitability indicator without a pricing formula, can be problematic for claiming post hoc adjustments. Classification is important for goods. Make sure that you've correctly classified your products, determines, duty rates under normal trade relations, rates of duty, applicability of certain trade remedy orders, like the section three zero one tariffs, eligibility for an exclusion under certain, IEPO tariff measures. And then, of course, there are specific product exclusions, granted under chapter 99 and chapter 98, for partial or full duty exemption. So, we've worked with a lot with companies, importing goods, for handicapped persons, for example, under the Nairobi protocol. So, before implementing a program like that, though, you should do an analysis a formal analysis to make sure that your goods qualify. Another common one we're seeing is for agricultural use goods, pottery, like plastic. Planter pots, for example, are an example of products that qualify for an agricultural use exemption. And, under the chapter 98, is controlling, and so, products are typically exempted from some of these other tariff measures if you can qualify, for that exemption. In terms of country of origin, we've done a lot of work with companies to look at, what is the critical path to changing the country of origin for a product. So, generally, for most countries, it's the well, with respect to these trade remedy orders, it's a sub a substantial transformation is required. So, many of our clients say, like, hey. I, I I'm fine producing. I my supplier has, capabilities to produce, you know, complete, like, fine certain production processes outside of China, but I need for example, I'm in love with bamboo cotton, and I could only get it from China. Right? Like, I can't that's the one thing that I can't change. So, like, having these conversations, with your trade advisers and really kinda getting clear on, like, what you need, what you can change, would enable discussion and analysis to help you think about ways to change the country of origin of your products. I think one of the important things to know back in 02/2018, conversations with clients. We're not really thinking about leaving China. We're not hearing that anymore. Definitely, there's been a wholesale change in mindset and, the actions that companies are considering now. And then maybe just one more thing on country of origin. As you've seen, we're in a state of flux. The tariff rates are changing, and so it may be hard to finalize your location strategy. But using the time available right now to understand, like, what the key factors are or the critical path to changing country of origin will, really enable you to make that decision once, the dust settles and all information is known. Finally, just kinda walking through non duval cost element. One, low hanging fruit, companies can, deduct foreign inland freight on ex factory, sales under the ex factory incoterm, for goods that are, sold for The US if they're shipped on a through bill of lading. In all other cases, the inland freight is part of the customs value, and it would be dutiable. So if you wanna change that, reach out to, a Flexport account executive, and they can provide a cost estimate for the foreign inland freight and help you set that up. Engineering and design work that's undertaken in The US is nondutiable. But if it occurs outside The US, it would be dutiable. Buying commission paid by the, the US buyer is non dutiable, and it really comes down to who controls the, the agent, whether they're working for the seller or for you. Sometimes a relationship will, you know, kinda settle that question. An an agreed discount pursuant to an objective formula. We've had a lot of companies ask us, like, what if I buy for Kate the, the cost of goods, like, the profit from the cost of goods? Is that acceptable? And it's not. Profit is in for purposes of duty calculations. But an example of a discount that would be nondutiable would be if you agreed to a discount based on payment terms and you actually pay within that period, then you can claim that discount on the customs entry. Royalties or IP for technology devices is a key not even technology, but, branded products. Also, the key area of opportunity for, reducing customs value. Fees incident to the shipment, like booking fees, port fees, consolidation fees, export clearance fees are all out, and duty and international freight charges. So if you have any questions about any of these things, reach out to, Flexport, and we'll be glad to walk through them with you. So with that, I'm gonna turn you over to, Tim. This is one presentation that I'm personally looking forward to.

Tim Vorderstrasse

Thank you, Anna. So we're gonna dive into some drawback considerations. Obviously, most of you are very concerned with getting your products here, and and there's been there's going to continue to be a shift in, US companies in how they're approaching their international strategy as it relates to bringing goods into The US, how they bring it in. You know, there was, years ago, a a shift to near shoring and and cross border fulfillment. That sort of I mean, we we heard about it recently. Right? That that is kinda gonna change for a lot of companies, and there's a lot of decisions to be made. So, you know, Anna presented on a a lot of great opportunities to increase compliance. There's a lot of ducks you need to line up to make sure that you can get your goods cleared. And then also, you know, taking those effective strategies to minimizing the duties through reevaluating your pricing structure, what value you're declaring on your custom century, what can you do. There's a lot of evasion tactics and a lot of strategies that are too good to be true, and it is too good to be true in a lot of cases. So you wanna be very careful and mindful of of that. Looking at, you know, making sure you have the right classification so the right duty rates apply, and there's other considerations there. And then, you know, what can you do from a country of origin, whether, to to hopefully get you to a more favorable place on on the duty rates. That being said, once the merchandise is here, and if you're exporting or destroying within The US or from The US, there is an avenue potentially. Right? If you're importing and you're exporting and destroying, for you to recover up to 99% of your import duties, taxes, and fees, and that process is duty drawbacks. So, hopefully, if you're a company that, is importing and exporting or importing and destroying, you're already taking advantage of duty drawback to help offset and recover some of those tariffs that are coming in. And there's a lot of implications, that you or a lot of things that you should consider as you're moving on maybe with your next claim, to make sure that you're really setting yourself up for optimal success there. You know, if you're not taking advantage of your drawback and you're importing and you're exporting, importing and destroying, I do wanna encourage you to explore this. Reach out to customsbd@flexsport.com and have that initial conversation to determine whether or not a drawback program might might be right for you. There's a lot of different ways that it works and only for a few certain, circumstances where it's a little bit more challenging. So now we'll dive into, some some mindful ways where you can be a bit more in control of your drawback program. It it's important to know what is eligible. I saw some questions come in around, what is eligible, what is not eligible. And with the wax on, wax off approach of this administration, as it relates to drawback eligibility for certain tariffs, while potentially could be challenged in a court of law, where we are today is, you know, your regular duties, the ones that apply to your o one through 97 chapters, your regular everyday run of the mill tariffs, those are eligible for drawback. They have been they will be, assuming nothing goes wrong here. Your section two zero one, remember those? Nobody talks about those as much but, those are eligible. The section two thirty two, right, there's a lot of stuff going on with two, with two thirty two. Those, unfortunately, are not eligible for duty drawback, and especially as we saw some line splits. If you're importing this stuff, you see, you know, sometimes one commercial invoice line now relates to two entry lines. So a lot of complexity introduced to drawback even though the two thirty twos are not eligible. And, something to be mindful of is at that entry construction. So even that customary duty would be eligible, but now it's being split. So something to be really mindful of. Your section three zero one, those of right? We've been we've had those for a while. Those are also eligible for drawback. The IEPAFentanyl, that was, in a through the executive order, that is not eligible for drawback. The AIPA reciprocal, that is eligible for drawback. So all these, nation specific tariffs are currently eligible for drawback. I called out Brazil, India as well does not limit drawbacks. We anticipate the end India one to also, allow for the the drawback of your fees or your duties there. And as always, antidumping, countervailing duties, they're they're there for a reason. They're they have their own complexity. Those are not eligible for drawback and agricultural over quota duties as well do not qualify for drawback. So, hopefully, now you kinda get an understanding of of what is, what isn't eligible. Operationally, when you think about the implementation execution of a drawback program, it is very, very important to make sure you know what portion of the duties are and are not eligible for drawback. The enforcement is coming. It it's gonna be incomplete. I think initially, the enforcement is gonna be certain tariff numbers. They're gonna be able to call that out. They don't really have the ability today to even measure how much duty is being apportioned, and calculated correctly on the import side. And on the drawback side, that's gonna continue to be more of a compliance step that brokers and claimants or importers, have to take, in ensuring that they're, you're only claiming what you're allowed to claim. The other thing to consider is, you know, with the rise in tariffs, yes, enforcement is going up, but also there are new entrance into drawback, new companies that had never been paying duties, now have material duties, and opportunities under drawbacks. So there are new entrance, new applicants to drawback, which will reduce the will increase the timelines on customs to reviewing and approving new programs in reviewing and approving applications, CF 20 eights, and anything like that. So just be ready. If you are new on the scene, you you wanna claim drawback, I would start as soon as possible because it's it's first come, first serve, and those resources are going fast at customs. If you are claiming drawback, you know, there there are now duties on more there there's more duties. There's more duties on more of your goods, and so you might have implemented a program to target certain commodities, certain port portions of your supply chain, and it may be time to review revisit is the type of drawback or the scope of your drawback program sufficient for you. There's a lot of opportunities. You know, if if your program is older than five, ten years old and you've kind of been doing it the same way, there are there's a new regulation. Right? And that that new regulation has opened up opportunities in in in really, transformative ways, and you wanna take advantage of that. But if your program is somewhat newer, you you really wanna rethink, your drawback approach approach to make sure that, you know, the the good enough back then is still good enough for you today and that you're getting everything you can. One thing that I I really wanna call out is if you are importing and exporting to Canada or Mexico or if you're importing and exporting commodities under an other other classification or general basket classification that isn't specifically called out within the HTS and you don't have a serial, a lot number, a batch number, a VIN, a direct link between your imports and their export, you wanna consider what accounting method you're using. Under regulation, you have a number of preset accounting methods, something like a first in first out, last in first out. And then there are some ones that are more commonly, taken advantage of with drawback that have to do with the lowest duty per unit within your inventory over a certain period of time. And those are oftentimes the easiest. And so if you're not a 100% sure of the type of drawback you're claiming and on top of that whether you are using which accounting method you're using, One, you wanna you wanna make sure you understand what accounting method you're using because it could have dramatic implications to your drawback recoveries. Because if you're using one of these, ease easier, accounting methods, they're great, but when they they're not great when you're importing similar merchandise with varying values or varying duties over a period of time. And right now, we're in a period of volatility. Right? There's increased tariffs all over the place, and you what you were paying six months ago, a year ago is very different than potentially what you're paying now. And so you wanna revisit your accounting method to make sure you're capitalizing on your transactions and making the most out of it. And if you're not a 100% sure about what where your program is, ask your broker. Confirm that. And then certainly consider switching to something either like a first in first out or a last in first out, more likely last in first out. That way, you can really focus more of your energy on getting everything you can as it relates to the higher tariffs, and you're not foregoing the higher tariffs for ease and comfort and targeting the lowest duty per unit within your inventory system. You also wanna review your entry construction. Right? This is the time to really take a look at, you know, every every part of your supply chain. And this also goes with how your entries are constructed. You could import, the same commercial invoice that you and and just turn around and export. You might only be able to get 85% of it, the drawback back depending on the values contained with that within your entries. Also, if you're doing reconciliation, you can claim drawback on the increased duties that that might be assessed on your recons, but it requires you to do entry by entry, reconciliations as opposed to aggregates. And so if you are doing both drawback and you're doing recons and you're oftentimes paying additional tariffs and duties, you wanna ensure that you are you're setting yourself up in a way that you can claim that money back. A big trigger item, especially, is supply chains and fulfillment companies, distribution companies are coming back into The US for the domestic and and foreign, distribution is, you know, if you're coming and fulfilling product within The US, make sure you have an effective way to segregate the returns of open box or otherwise used merchandise from unsold, unused merchandise to preserve that opportunity for drawback. I'm not gonna get into the whole why and all that. Just be mindful, right, how you handle your returns both from domestic consumers and foreign consumers. More so, the domestic consumers is a an important consideration in whether or not drawback is even an option for you, but in how your drawback program could be implemented. As we continue to look at opportunities to improve the bottom lines and help to maximize your refunds, you know, look to your supply chain partners. Those who might be importing the merchandise that you are purchasing from them. If you're if you're buying imported merchandise, you could be eligible for a drawback if that merchandise is later exported or destroyed. Similarly, if you're importing or buying imported merchandise and then turning around selling to somebody and that somebody is exporting the merchandise or destroying the merchandise, with their cooperation, you can claim that money back. So it is important to know, right, there are opportunities across businesses. Right? Companies are in the businesses buying and selling and making stuff. And oftentimes, by by the sheer action of doing those things, you may qualify for drawback. And so something I I wanna encourage you to do is is take a look at whether or not you or your partners collectively could qualify for some refunds here. Review your scrapping, your destruction process, your warranties, donations. Right? Oftentimes, if you're scrapping or destroying merchandise or if you have a return policy around warranties, or a return policy around warranties, or it recalls, right, and you're turning around destroying that merchandise, there is potentially a way for you to get that money back. Make sure, right, if you're doing donations and that it's going to be exported out to help, somewhere else in the world, those donations may also qualify for drawback. So something to keep in mind. And, determine whether your mac, packaging materials qualify. And so that's, you know, the boxes, the cartons, the any the the you know, the the little pouches or even lipstick containers and and and cosmetic packaging. Right? Those types of things may also qualify for drawbacks. So if you're you if you're one of those companies that's using contract manufacturer potentially to, fill these packaging components with cosmetics, those package components may be eligible for drawbacks. So consider that. And then, of course, you know, if you can invest less time, less resources in the implementation execution of your drawback program, it's gonna be a greater ROI and you're gonna save money, just on on human capital. So find ways to optimize and streamline your process to make drawback easier for you. And with that, we'll go on. We'll talk a little bit about some helpful resources. As you see above, above the the screen here, we have a request ACE analysis. The ACE analysis, which if you're not familiar with ACE, that's customs platform. That's their system. They're pouring millions and millions of dollars. They're forcing in a lot of ways with recent development rollouts. They're trying to push more and more companies onto the ACE portal, and they're creating more and more very critical functionality within that portal. So it's highly recommended that regardless of the ACE analysis, get yourself an ACE account because that's all the data that customs has on you. It gives you visibility to the information that they have and it allows you to really see what customs sees when they when they think and look at you, or a lot of it. So what we do at Flexport is we we take that some of that you can assign us access, and we'll pull down some data, and then we'll return it back to you because so you can see some duty savings opportunities, identify potential compliance risks or missed cost savings opportunities. There's a lot of different dashboards and especially in the the tumultuous time that we live in. You wanna make sure you have a good handle on where you were, where you are, and where you could be going as it relates to the tariffs and compliance. And this is complimentary for anybody that's on this call today. So you can you can click on the request ACE analysis button at the top or you can also email customsbd@flexport.com. I also wanna call out the tariff simulator. This is great if you're, you know, trying to figure this all out. I know we all are. This is a great tool. Go to tariffs.flexport.com. You can you can review your the the tariff and landed costs, estimates. You can see some of the the shipment scenarios. There's even a toggle for steel and aluminum content. It's pretty cool, and it allows you access to some real time trade data. So check that site out. And as always, we're here to help you. We're here with you. We're all trying to get through this. And so, you know, if you're working if you're trying to understand more about classification or your or your duty rates, US or international checkout, feel free to reach out to either customsbd@flexport or you can reach out to classification@flexport.com. And then any other trade advisory like consulting, if you wanna talk about drawback, which I hope you do, or you wanna talk about customs, brokerage, reach out to customsbd@flexport.com. That's short for customs business development. They're here to help you and design a solution to make sure you get the most out of your experience with Flexport. With that, we're gonna drop in the CCS, ME MCS, CES, and LCB credits into the chat. We are gonna jump now to q and a, and I'll bring Anna back on the stage, and she'll take it over.

Anna Zajac

I'll take over, but you're staying. And Rachel's gonna join us. And so, while we're still talking about, drawback, we did receive a question about, just a quick recap. Do both the base and reciprocal when it comes to trial back, both the base and reciprocal tariff supply, which I think you already answered. And then it it says, how would the newest tariffs on India be affected in regards to the duty drawback?

Tim Vorderstrasse

Yeah. Great. So, yeah, we're we're we're awaiting formal guidance in CSMS, or federal register notice regarding the applicability. However, the wording of the executive order mirrors that of the reciprocal and and Brazil suggesting that drawback will be eligible. Given the language and everything that that relates, we anticipate that drawback will be eligible also on the the the India tariffs. But to go back to the first one, we did talk about it. But, yeah, your your base or your regular or customary duties are eligible. The IEP or reciprocal are eligible as well.

Anna Zajac

Yeah. So I read just, on the ineligible, it's anti dumping, countervailing duty, two thirty two, and fentanyl. Is that right?

Tim Vorderstrasse

Yeah. Over quota duty. Basically, everything else is in. Yep. And the HMF, you know, you can get all that stuff back in most

Anna Zajac

cases as well. No doubt. You're paying $500,000 in that MPF. So and you can find out how much you're paying by getting an ACE analysis. That's right. Okay. So for the for for the in transit exception, we have a call, a question about which which, qualifies as the final mode of transport. We did talk about this early in the presentation. It's that mother vessel. So it needs to be on that mother vessel in route to The US port, but they're saying still needs to be loaded on a truck for delivery. No. It has to be on the mother vessel. Like, I think that's, like, the easiest way to simplify the answer. It needs to be on that final mother vessel for transport to The US. Again, cross border shipments by truck, rail, air are, ineligible for that exception. Is there a published list of HTS codes, Rachel, for copper derivatives like there was for aluminum and steel under the 232 order?

Rachel Dean

I like it. This is what I can do really easily. Yes. There is. There's a a finite list of the products that are subject to the section two thirty two duties.

Anna Zajac

Great. Tim, for duty drawback, can you elaborate on destroying if your business has a scrap rate? Can you can you, can you file duty drawback on items that are scrapped as part of the final manufacturing process?

Tim Vorderstrasse

Oh, that that's great. So that took a little bit of a turn at the end. Essentially, if you're destroying product, it does qualify for drawback. You need a certificate of destruction. There's some other things like documenting the withdrawal from your inventory, how do the merchandise get from your location to the destruction facility, and then ultimately a certificate of destruction. There's a whole, you know, we have a boilerplate one that that certain, destruction companies will can have used in the past. But this question took a little bit of turn at the end because it's talking about, you know, waste or byproducts potentially of a manufacturing operation. Valuable recoverable waste, when destroyed, does not qualify for drawback. There are other ways potentially through different basis claim like a used in, less valuable waste, or more so used in where you can really claim the quantity of raw materials used in the production even though it doesn't appear in the final product. So not I wasn't talking, you know, I didn't bring up, a basis of claim in the presentation. But if you're doing manufacturing, basis of claim is certainly something that could have a dramatic impact on your your your claim. So something to keep in mind. Great question.

Anna Zajac

That is a great question. I I think, we've had companies ask about, like, what if I recycle my goods instead of destroy them? Can I claim DD drawback?

Tim Vorderstrasse

And yeah. So with recycling, it does qualify. Right? You just have to reduce by the the amount that's or the value that's recovered.

Anna Zajac

Good point. Okay. So, Rachel, for de minimis, is it a rate per item rate in a package or per package rate?

Rachel Dean

It's going to be a per package rate. That is the item that's being cleared and entered in customs. So it needs to make make sure the valuation is correct, that it's under the 800 threshold, and then yes.

Anna Zajac

Okay. Perfect. In terms of The US, certifying, that the content is 20% US origin, what certificate or evidence do we need to certify US origin, for to be eligible for that 20%? We work with other clients to do that. What we do is we we, request a cost of bill material, and may work with them to make sure that they have documentary support to conclude that this actually is a US product. Do you have a manufacturer's affidavit? Like, where did it come from? And then, in relation to the to the whole, and then you need to think about also not just what eligibility, but, like, how are you gonna support that on your documentation, your import documentation because, it's not required to submit, evidence with every shipment. You need it, if CBP ever asks. But, where I think that that upfront analysis is super helpful because you'll have it on the ready and turnkey. But on the documents, your broker needs to know, what the value of The US content is. And usually, suppliers only they it's they collapse the value. It's just one line per product. So you actually need to work with your supplier to modify the invoice or create a for a pro form a invoice with that level of detail, to make sure that, the broker can execute on your behalf. We have another question about USMCA. If goods are from Mexico are covered by USMCA, no tariffs apply.