Experts: CBP More Stringent in All Areas

CBP is "definitely looking at entries a lot closer," Fitzgerald said. Importers are receiving more CBP Form 28 requests for information and are receiving more notices of action, or CBP Form 29. He said there are more first-sale compliance checks and CBP is looking at valuation claims. He also said that CBP has been less forgiving of companies that file Import Security Filings late. He said in the past, the penalty was often reduced as a matter of course to $1,000. Now, he said, CBP looks back for a few years to see if the company is an ISF repeat offender. If it's happened before, the penalty might only be reduced to $2,500. He said sometimes, CBP will offer no mitigation, and the full $5,000 fine is owed.

Pereira said the cost to companies isn't just the tariffs themselves, but also the cost of higher bonds, payments to service providers, increased requirements for documentation, increased Form 28s and risk analysis survey assessments from CBP. "It goes far beyond just the tariffs," she said.

Fitzgerald elaborated on the way that higher tariffs are affecting customs bond underwriting in his presentation at the U.S. Fashion Industry Association annual conference Nov. 5. Pereira presented at the same session.

He said CBP told Geodis that before this year, on average, there would be 4,300 customs bonds saturated in a year. "Now, it's 4,500 per month. So it's a huge wave."

He said, given the size of the bonds needed at these tariff rates, "there's more risk for the surety." He said insurers are asking for the most recent audited financials, and are looking for free cash on balance sheets. Underwriters are requiring collateral, and a letter of credit equal to the size of the bond.

"That's huge for small companies. That million [dollars] is frozen. You can't use it for payroll. You can't use it for investing."

Fitzgerald said as long as the entries have not liquidated, the bonds do not terminate, so companies are having to stack multiple bonds over the course of a year.

He also talked about the burden on brokers, from both the proliferation of new data required to calculate tariffs and the last-minute nature of new tariffs, with implementation dates following too fast for brokerage IT departments to update internal systems. "We joke every Friday night ... what's going to come out at 9:32 that's going to affect us on Monday morning?"

"You may have six tariff numbers associated to your first tariff number," he said. "That all has to be done manually." A task that would have taken 30 to 45 minutes can now take four to seven hours, he said.

One example -- importing a chair that has steel bracing and aluminum feet. Now, it's not just the HTS for the chair, but you have to know the cost of the steel and aluminum content, and where those metals were melted and poured or smelt and cast. If you don't know the country of smelt and cast for those aluminum feet, you'll have to pay 200% tariffs on the portion of the chair they account for.

"The derivatives have really come to a point where you really need a bill of materials," he said.

However, Fitzgerald said his brokerage already had a steel and aluminum vertical, so it's been able to train employees that specialize in other products what to look for on a mill certification to document the country of melt and pour or cast and smelt.

Fitzgerald was asked if any importers are able to reduce tariffs by documenting U.S. content of more than 20%. He said he's seen it when goods are exported to Canada for further processing and return to the U.S.; in order to make the claim, he said, importers need the bill of material for the export to Canada.

USFIA President Julie Hughes said importers are having trouble getting clear answers from CBP on how to use the exemption for U.S. content.

Fitzgerald said that CBP has issued a few rulings on how it works in the plastics sector.

At a later session, Cotton Incorporated senior economist Jon Devine showed the audience how to potentially get a discount on T-shirt tariffs through this mechanism.

He said: Take a men's cotton T-shirt with an average import cost of $2.07. He said that T-shirt weighs 0.51 pounds, and with a cotton price of 90 cents a pound across a three-year average, the U.S. cotton accounts for 46 cents of the cost of the shirt, or 22% of the value. (He said CBP has blessed the three-year average.) In that case, you could owe the average 36.5% most-favored nation + reciprocal tariff of $1.61 per shirt, rather than $2.07.

If the manufacturer used U.S. yarn rather than just cotton, it would be a lot easier for knitwear to get over the 20% level needed for the discount, he said.

However, the value of the cotton is a smaller proportion of the cost of a more complex garment, and the tariff break is only available if the U.S. content is 20% or more of the finished good. He gave the example of a pair of women's jeans, which cost $9.62 a pair. The cotton cost $1.34, only 14% of the value.