Easy to understand version of the Chinese billionaire’s scam to avoid paying duties on aluminum.

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Who is involved:
Chinese billionaire: Zhongtian Liu
His company: China Zhongwang Holdings Ltd.
Key players according to investigators: Zhaohua Chen, Xiang Chun Shao, Perfectus Aluminum Inc, Perfectus Aluminum Acquisitions, four LLC’s that owned the warehouses. A business agent named Po-Chi

What was he importing:
Aluminum pallets that appeared to be “finished” to avoid duties on unfinished aluminum extrusions. The pallets were “spot-welded” to appear to be finished pallets.

Purpose of scam:
Unfinished aluminum is subject to a high rate of duty (up to 400%)

How he scammed Customs:
He imported the aluminum as finished aluminum pallets. Finished aluminum pallets have a lower duty.

How did the scam work?
1. Import aluminum pallets instead of extruded aluminum. Manufactured pallets avoid the duties versus extruded aluminum.
2. The pallets were then stored in warehouses.
3. The pallets were “sold” to entities owned by the billionaire to inflate sales and deceive investors.
4. Investigators believed Liu was going to build a smelting plant to melt the palllets then sell as raw aluminum. The aluminum imported was a higher grade and used in applications such as surgical tools.

How big ($) was the scam?
A total of 2.2 million pallets were imported from 2011 to 2014.
Customs believe the billionaire avoided paying $1.8 billion.

When was the scam discovered?
Started in 2017 with notice of the charges released this week.

What will happen to the people charged?
Probably not much, Liu and the defendants are in China and the US cannot extradite them (no treaty with China).

If you have any questions about limiting your tariff liability the legal way – contact experienced trade attorney David Hsu at 832-896-6288 or by email at attorney.dave@yahoo.com, dh@gjatradelaw.com.

Chinese manufacturers return to China leaving ‘inefficient’ Vietnam.

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According to the South China Morning Post, some Chinese manufacturers that relocated to Vietnam due to the tariffs placed on imports to the US, are moving back to China or exploring manufacturing options in Thailand, Bangladesh and Myanmar.

The SCMP article quotes a factory manager who said differences in culture (no over time in Vietnam and lower skill labor force) were two main causes of delays in delivery times and poor production numbers. With the tariffs in place, this has increased the demand for land and labor in Vietnam, causing costs to also increase. As foreigners cannot own land in Vietnam, there is also a risk for Chinese manufacturers to partner with a Vietnamese counterpart. Another factor leading to increased manufacturing costs for Chinese companies are the stricter labor and environmental protections, causing many Chinese companies to face fines for violations.

The current trade situation in Vietnam and US tariffs are forcing some manufacturers to look towards Thailand – attractive because of the stable political situation but high labor costs; Bangladesh which is relatively unknown to Chinese manufacturers and Myanmar which has low labor costs, but Myanmar faces sanctions due to their human rights abuses.

While not discussed in the SCMP article, the other big problem for Chinese manufacturers is the issue of how long the US 301 duties will remain in place. Just as spontaneously as the 301 duties were put in place, the 301 duties can also spontaneously end at the discretion of President Trump. I believe this unpredictability is the main question Chinese manufacturers must answer before spending the money and dedicating the time, resources, and manpower needed to move production to a foreign country.

If you have any questions regarding country of origin and how to avoid tariffs by moving production to other countries besides China, contact experienced trade attorney David Hsu at 832-896-6288 or by email at dh@gjatradelaw.com, attorney.dave@yahoo.com.

Appeals Court rules against Ford Motor Company, finds tariff engineering deceptive.

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Earlier in March, I wrote a post about Ford Motor Company’s tariff engineering of importing “passenger vans” at 2.5% and then converting the “passenger vans” to cargo vans. This tariff engineering allowed Ford to pay the 2.5% for passenger vans instead of 25% for cargo vans.

Yesterday, the Court of Appeals for the Federal Circuit reversed the Court of International Trade’s holding and found that slight modifications to a vehicle so that it would not get the 25% duty on cargo trucks was deceptive and reversed the CIT’s holding that modifications done to a vehicle after importation into the US was irrelevant.

This new ruling will have a big impact on a lot of existing classifications.

The full ruling can be found at the link below:

http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/18-1018.Opinion.6-7-2019.pdf

If you have a ruling, classification or tariff engineering questions, contact experienced trade law attorney David Hsu at 832-896-6288 or by email at attorney.dave@yahoo.com or dh@gjatradelaw.com.

Passenger van or cargo van? That is the question (well, for Ford at least).

red ford van

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A current case in federal court is attempting to address when or if a passenger van is actually a cargo van.

The case involves Ford Motor Company and their imports of passenger vans that removed a row of seats and sold the vehicles as cargo vans. Cargo vans were levied a duty of 25%, whereas their passenger van counterparts were only taxes 2.5%. Specifically, Ford imported “passenger vans” into the US from Turkey. After they cleared customs, the second row of seats were removed, windows blocked and holes on the floorboard for the seats were covered.

In 2017, the Court of International Trade ruled in Ford’s favor, but the government has appealed and the U.S. Court of Appeals for the Federal Circuit heard oral arguments yesterday (Monday 11, 2019). Many are watching the ruling as this may impact what strategies companies implement when “tariff engineering” imports to avoid higher duty amounts.

Tariff engineering and finding alternate classifications under the Harmonized Tariff Schedule of the US (HTSUS) are common ways importers try to lower their duty amounts.

The Ford argument is the goods should be classified as they are imported and subsequent altering does not matter. However, the government claims Ford’s wording of the vehicle is “for the transport of persons” instead of goods, ie is a cargo van.

Will update as soon as a decision is made.

If you are interested in how your company can “tariff engineer” goods or want to discuss alternative classifications for your goods, contact experienced trade attorney David Hsu at 832-896-6288 or email David’s catchall email: attorney.dave@yahoo.com (will be sent to David’s dh@gjatradelaw.com) email.