China and the UK have managed to conclude new trade deals, although the future of UK steel products is still not clear.
The countdown is on to the 9 July deadline that President Trump proposed back in April after announcing the tariff increases. If no trade deal is concluded or if President Trump does not extend the deadline, many countries face large increases on the prices of goods imported into the USA.
Far Eastern countries may be hit with country specific tariffs of between 24% and 49% and additional tariffs of between 20% and 100% for specific products, based on the country of origin. The highest tariff rate could be 149%!
The USA determines origin based on preferential and non-preferential rules of origin. For preferential rules of origin (where there is a trade deal in place) it is possible to import items from, say the UK, that have been substantially transformed from goods from a non-preferential trade partner such as a far eastern country and have the lower tariff applied.
Alternatively, where the non-preferential goods form a small part of the goods, the non-preferential goods are ignored.
Therefore, it could be possible to import raw materials (e.g. cloth, steel, aluminium) into the UK and transform them into other goods such as clothing, screws or tin cans and the preferential rate for the UK (10%) would apply.
For example, cotton cloth from Cambodia can come into the UK at 0% duty under the Developing Countries Trading Scheme (“DCTS”). It could then be made into t-shirts and shipped to the USA at the UK general 10% duty rate because it has undergone substantial transformation. The general rate for Cambodia if there is no extension to the tariff holiday or no trade deal is 49%, so t-shirts shipped from Cambodia to USA directly would cost 39% more in terms of duty.
Hillier Hopkins LLP has the expertise to advise on this and to optimise supply chains. Please contact Ruth Corkin (ruth.corkin@hhllp.co.uk) for more information.
