Customs Duty Deferrals: Breathing Room for Qualified Retailers

The COVID-19 crisis has dealt a devastating blow to the whole economy, and it has hit the retail industry particularly hard. With widespread stay-at-home orders and closure of physical stores, many retailers have been forced to make difficult decisions, including employee furloughs or layoffs. Amid sharp revenue decline, this industry is anxious to find cost-cutting measures to help keep them afloat during this crisis. In addition, it has been aggressively lobbying the White House to suspend costly import duties due in large part to the ever-changing trade war with China.

Retailers’ request for relief, albeit limited and temporary, was answered on April 18, 2020, when President Trump signed an Executive Order providing additional economic support for U.S. businesses. The Executive Order specifically gave the Treasury Department the authority to implement deferrals for customs duties and fees. Subsequently, on April 19, 2020, the Treasury Department and U.S. Customs and Border Protection (CBP) issued a joint statement permitting a 90-day postponement for the payment of certain customs duties and fees by qualified importers. It is worth noting that not all retailers and other businesses will benefit from this deferral treatment, and the scope of deferred duties and fees is limited.

Eligible Importers

Only importers with significant financial hardship can benefit from this duty deferral. The joint statement acknowledges that due to the COVID-19 pandemic, local, state and national restrictions have forced U.S. businesses to either halt their operations or to limit them substantially. In particular, the joint statement explicitly mentions the hardships endured by many major retail chains due to their partial or total shut down. An importer will be considered to have a “significant financial hardship” if both of the following conditions are met:

1. its operations are fully or partially suspended during March or April 2020 due to orders from a competent governmental authority limiting commerce, travel or group meetings because of COVID-19.
2. gross receipts for such importer are less than 60 percent of the gross receipts for the comparable period in 2019.

The potential deferral of duties applies only to certain importations that occurred after March 1, 2020, but no later than April 30, 2020. However, to the dismay of the retail industry, the deferment does not apply to duties collected on the basis of trade remedies, such as Section 301 duties for Chinese-origin imports.

Industry Continues to Pursue Additional Financial Relief

These tariff deferrals are by no means a panacea for all of the side effects that the retail industry is suffering as a result of this public health crisis. The Retail Industry Leaders Association applauded the move but continues to urge the administration to take more steps, such as extending the postponement period to at least 180 days. Similarly, the National Retail Federation also urged the administration to provide more meaningful relief by broadening duty deferral opportunities.

As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.