After Initial Hesitation, Treasury and Customs and Border Protection Jointly Provide Partial Duty Deferral
Since the COVID-19 outbreak hit the United States, nothing has been “business as usual” for those in the apparel industry. Various big chain stores have taken drastic steps to curb any potential business exposure they might face – thousands of apparel industry employees have been furloughed, stores have unilaterally extended payment terms to vendors and orders have been cancelled or suspended as buyers take a wait and see approach as to when retail would be opened up again. Consequently, apparel businesses have been left to deal with serious cash flow challenges.
One of the major forms of relief provided to American businesses by the government has been an automatic 90 day tax deferral (from April 15th to July 15th) of up to $10 million with a waiver of interest and penalties. Given the tax deferral, it surprised many in the apparel industry that the government did not also provide a similar deferral with regard to the payment of custom duties. Typically, an importer must either pay duties owed to the United States Customs and Border Protection (“CBP”) within 10 days of cargo being released, or duties, taxes and fees can be collectively paid via automated clearing house (ACH) through what CBP refers to as a periodic monthly statement.
In the face of the COVID-19 pandemic, the CBP has gone back and forth as to whether to provide any relief to those importing apparel into the United States. The CBP initially issued an order on March 20, 2020 (CSMS #42097586) stating that it would review applications seeking additional days to make payment of estimated duties, taxes and fees on a case by case basis. But, seven days later, on March 27, 2020, the CBP issued a subsequent order (CSMS #4217313) stating that duty payments “should be made in accordance with normal business practices.” National Economic Council Director, Larry Kudlow, went on to say that, for reasons of administrability, the United States would not be deferring custom duty payments.
However, in an abrupt change of position, following an Executive Order from President Trump, the U.S. Treasury and CBP issued an order on April 19, 2020 (CSMS # 42423171) announcing a 90-day postponement of payment for the deposit of certain estimated duties, taxes and fees for importers experiencing significant financial hardship due to COVID-19. The postponement applies to formal entries of merchandise entered, or withdrawn from warehouse, for consumption in March or April 2020. An importer will be considered to have a “significant financial hardship” if the operation of such importer is fully or partially suspended during March or April 2020 due to orders from a competent governmental authority limiting commerce, travel or group meetings due to COVID-19, and as a result of such suspension, the gross receipts of such importer for March 13-31, 2020 or April 2020 are less than 60 percent of the gross receipts for the comparable period in 2019.
Although this is welcomed relief for most American importers, it is not considered enough for many in the apparel industry, as this postponement of duties, does not apply to merchandise subject to antidumping duties, countervailing duties and/or Section 201, 232 or 301 tariffs – i.e. American apparel and textile companies are not being granted any deferrals to pay the China trade war tariffs for textile, apparel, footwear and accessories imports.
Steve Lamar, president and chief executive officer of the American Apparel & Footwear Association stated that although the deferral of duty payments provide some of the relief necessary for American companies, “all goods — including textiles, apparel, footwear, and accessories facing Section 301 tariffs — [should] be covered by this deferral action. Every day we have to pay those duties means another day we can’t pay our workers.”
Those in the apparel industry should continue to monitor the CBP for any further guidance or updates on the government’s response to COVID-19.
If you have any questions regarding the issues raised in this client alert, please contact your Litigation counsel at Smith, Gambrell & Russell, LLP.
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