On a webinar Wednesday, David Cohen, an international trade expert with Sandler, Travis & Rosenberg, and Bill Sells, SVP government relations & public affairs at the SFIA, discussed the urgency for affected sporting goods companies to seek exclusions to avoid the latest round of tariffs on Chinese imports. The first deadline in the exclusion process is less than 10 days away.
Last Wednesday, July 11, the United States Trade Representative (USTR) released a list of proposed targets for a 10 percent tariff on Chinese imports. The list was developed to satisfy President Trump’s request for a list of products for an additional $200 billion in tariffs to punish China for intellectual property rights violations. The list of proposed products to face a 10 percent tariff includes sports bags, hats, helmet accessories, baseball/softball gloves, batting gloves, hockey gloves, ski gloves, specific apparel items and many other variations of these products.
“Baseball and softball got hit the hardest but golf, hockey, headwear and sports bags were all targeted for tariffs,” said Sells on the call. Adding some more specifics, Sells noted that sports bags, but not backpacks, were included on the list. Chin straps and visors for helmets are included as well as leather and composite-leather golf bags as well.
Cohen noted that last week’s round marks “List 3” of the rounds of tariffs that have arrived to combat alleged intellectual property violations by China.
The first, “List 1,” arrived on April 6 as the USTR identified $50 billion of China imports targeted with a 25 percent duty.
On June 15, the Trump administration said that $34 billion worth of Chinese goods will be subject to tariffs starting July 6 while adding an additional $16 billion worth of China-made products subject to tariffs in what represented “List 2.” The second list arrived after companies secured exclusions for their categories from the initial “List 1.” Of the roughly 1,300 products the administration had initially considered on April 6, 818 products wound up receiving new tariffs.
On June 16, China retaliated by imposing an equal 25 percent tariff on U.S. goods with a value of $50 billion. On July 6, the initial list of 25 percent tariffs on “List 1” goods went into effect.
Finally, “List 3” arrived on July 11 with the proposal of 10 percent tariffs on $200 billion on China-made goods becoming the first list to include a number of classifications in the sports and fitness sector. The list arrived in retaliation for China’s retaliatory tariffs.
The seminar’s main focus concerned seeking out exclusions for many in the sports & fitness industry to the classifications impacted by “List 3.”
The first key deadline is July 27, when companies or trade organization can request to appear in person at a public hearing slated to run from August 20 to August 23. Each participant will have five minutes to speak but time slots must be requested by July 27. The request must include a summary of the proposed testimony.
The second key deadline is August 17, when written comments regarding potential exclusions have to be submitted. Cohen’s firm intends to publicly file all collected comments on behalf of the SFIA.
The public hearing then takes place from August 20 to 23, with some members of USTA, Department of Commerce and Department of Labor typically overseeing the sessions. By August 30, post-hearing rebuttal comments are due.
When the tariffs from “List 3” arrive is up the discretion of the president but they’re likely to be effective in October based on the timeline around the effective date of “List 1” tariffs, said Cohen.
As far as expectations around the written comments due August 17, Cohen said the agencies will particularly be looking into whether maintaining or imposing additional duties would cause disproportionate economic harm to U.S. interests, including small/medium-size businesses and consumers.
Cohen noted that in the public testimony in the past tariff rounds, those testifying were asked whether there were available alternatives for sourcing their products and whether they were available at similar costs. Many companies face capacity issues with sourcing elsewhere and some materials were found to be unable to be sourced elsewhere or only at an “economically-prohibitive cost,” said Cohen.
Cohen said his firm often gets asked how to avoid or minimize any impact of the tariffs. One way is reclassification, where a company that has typically classified its business under one classification may be able to change to another to avoid or lower the duties.
Another is “tariff origin,” where some manufacturing processes or sub-assembly can be changed to qualify the product for a change in country of origin to also earn preferential treatment in duties.
Under the First Sale Valuation, tariffs may be lowered if the duties are accessed on the earlier sale of the item versus the often higher value in a later sale down the supply chain. In some cases, items can be brought into the U.S. but avoid duties if they are then exported to other countries such as South America or Canada.
A bonded warehouse is a deferral mechanism that enables goods to be stored in a designated warehouse but have duties applied when they are shipped to the buyer. This may also result in a tariff savings if the tariffs are overturned at some point. Finally, Cohen said some companies may want to contemplate setting up distribution of online orders in a facility outside the U.S. such as in Canada or Mexico to avoid paying duties under certain cases.
But Cohen noted that the “home run” option for affected industry players is to the successfully gain an exclusion.
Encouragingly, he noted that of the goods that were proposed for tariffs under “List 1,” about 40 percent, were able to secure exclusions. Said Cohen, “The exclusion process had an impact.”
Asked what lessons were learned from the first round in the exclusions process, Cohen said that overall it’s ”been difficult to read the tea leaves on that.” He did note that tariffs have so far largely spared the textile, apparel and footwear sectors and he believes that’s because so much of the soft goods industry is dependent on sourcing from China and many of those groups have been lobbying hard to avoid any duties.
He also said that some observers believe that products particularly impacting the lower-income segments of the population saw a higher rate of exclusions.
For the sports and fitness industry, Cohen said the goal is to “gather like-minded companies together” with the assistance of the SFIA to collectively file petitions and follow-up with lobbying efforts. Said Cohen of those in Congress, “There are many sympathetic members. I think there’s growing support to find some alternative instead of penalizing importers. So we want to amplify that and continue to press those issues. And the lobbying piece is really an important complementary piece to the actual submissions of the petitions.”
Costs for filing a petition for an exclusion will be $2,000 for SFIA members per petition and $6,000 for non-members. Sells said that a business filing a petition on their own would spend close to $10,000. SFIA is encouraging those interested to reach out to SFIA Chandler Hoffman at choffman@sfia.org.
Participants on the call also said that should the president continue to use tariffs to apply pressure on China, the sports and industry will likely be hit harder in the future, including likely reaching many of the soft goods categories.
SFIA President and CEO Tom Cove on the call said the China tariff situation is “politically more complicated” versus many other tariff issues SFIA has battled in the past. He urged members to “get involved and engaged” and reach out to SFIA. Said Cove, “We want to help you avoid these kinds of punitive tariffs. The people who make the most noise with the most expertise get protected.”
