Build Tariff Planning into Product Development Strategy Early 

Estimated reading time: 6 minutes

An attorney at DesignCon? I wasn’t sure I heard that right either, but it’s true. I sat down for an interview with international trade lawyer James Kim of ArentFox Schiff LLP. James was at the show to present a session entitled “Chips, Batteries & Charging Stations,” which highlights the Biden administration’s steps to secure the supply chain for the EV industry.

James gave me a quick primer on international tariffs and trade laws, and he explained why design teams and manufacturers should consider import compliance early on in their product development to reduce risk and product cost. 

Andy Shaughnessy: I'm here at DesignCon with James Kim of ArentFox Schiff LLP. James is an international trade attorney, and the first one I've met at a trade show. So, what brings you to DesignCon, James? 

James Kim: That’s a good question. I may be the only attorney here at DesignCon! I'm speaking at the conference, and we have a session called Chips, Batteries and Charging Stations. Its focus is on how the Biden administration is taking steps to secure the supply chain for the EV industry. We thought that would be of interest to attendees here even though most of the folks are engineers rather than policy people. When it comes to trade issues or government incentives for the industry, these policies affect everybody all the way down to how you design your products and how you are sourcing your components. So, it's really important for everyone in this industry to be aware. 

Shaughnessy: You said that your clients range from large OEMs all the way down to tier one and tier two manufacturers. What do they come to you for? 

Kim: These companies are affected by things like the special tariffs on Chinese imports. Sometimes, the issue is that their imports are being scrutinized under some of the anti-forced labor provisions that are out there, which can cause big problems if you can't get your shipment across the border or your products are detained by authorities. 

Chip makers, for instance, have to deal with some of the more stringent export controls that have been put on chips that are exported out of the US, especially the more advanced chips. Whether it's import rules, export rules, or the incentives under the Inflation Reduction Act, a lot of these companies are trying to figure out how they can minimize their risk. In addition, they’re also asking, “How do I put myself in a more strategic position so I can save some costs and maybe mitigate some of the tariffs or trade enforcement that my products might be subject to? How can I make better sourcing decisions?” They are searching for a competitive advantage by really understanding how these trade rules and different laws around incentives are going to affect them. 

Shaughnessy: Every country has a different relationship with the US, so you have to understand all of them: the US-China relationship, US-Korea, US-EU. 

Kim: Yes, and it takes a while to really get your arms around them. I've been doing this for many years. I worked for the government at U.S. Customs for almost seven years. Unbeknownst to many, that agency is actually one of the largest law enforcement agencies in the U.S. They have their hands in lot of things. Anything that comes across the border must go through Customs and Border Protection (CBP).

As a CBP lawyer, I advised the agency on issues like admissibility, tariffs, and other import matters. We ran into a lot of interesting issues, but it can be overwhelming for a layperson to try to understand them all, especially when the rules change so rapidly. On the export front, there have been a whole slew of rules on export controls that have come out in just the last couple of years. It is hard to keep track of. That’s why companies come to lawyers like us, to try to make sense of it all, to help keep them out of trouble, and to support the bottom-line when it comes to saving costs by minimizing some of their tariff exposure.

Shaughnessy: American assembly providers are getting killed by tariffs on every little component now, like discretes. This hurts the small manufacturers who can't pass that cost onto their customers. What does it take to change these tariffs? Is it a matter of who screams the loudest? 

Kim: Sometimes it's that, but it's also knowing what avenues are out there for you to affect change. Let's say you have a specific product that is affected by those China special tariffs, which are often as high as 25%. The government has, from time to time, come out with ways to allow companies to request an exclusion from some of those tariffs. There is a whole process for submitting a request to get an exclusion from those high tariffs on China imports. We have helped companies successfully obtain those exclusions. Right now, the US Trade Representative is doing a review of those China special tariffs to see whether they're going to extend them, and, in some cases, increase or decrease them. We are still waiting to see how that is going to pan out. But during that process, the government has allowed companies to submit comments, to get their voices heard. We're helping companies make their case by arguing that some of those exclusions should remain in place.

Shaughnessy: What are some of the common mistakes made by companies? How do you advise people who are importing parts from places like China?

Kim: Import compliance is often an afterthought. It's considered something that you do at the end of the process after you design your product, figure out sourcing, and come up with a strategy to bring your product to market. Then you deal with the compliance. But what companies may be failing to see is that if they understand these rules from the get-go and incorporate them into their product strategy, they can avoid a mess later on. They can avoid the higher tariffs, avoid CBP scrutiny and fines or being subject to an audit. The savvier companies who come to us early on in their process have been able to work their way around these rules in a way that meets their needs.

Shaughnessy: Right after the lead-free RoHS legislation in the EU went into effect, a shipment of PlayStations coming into Europe for the Christmas season was seized because they had leaded solder. I think it was worth hundreds of millions of dollars. 

Kim: That’s right. It can be as easy as that if you are found to be non-compliant. 

Shaughnessy: James, this has really been fascinating. Thank you for your time. 

Kim: Thank you for the opportunity to talk about this. I’m looking forward to attending some of the DesignCon sessions myself. I find it all fascinating from my perspective. I’m glad to be here and am learning a lot.