It’s no secret that there is a pending trade battle brewing between the current U.S. Administration and many parts of the world. With the added percentages being added to Steel and Aluminum coming from allied nations already in effect, there is a new set of more than 1,300 items made on the mainland in China that is currently in the public discussion phase, but set to take effect in the next thirty days, which will automatically add a 25% tariff to any existing duties to these products.
While the U.S. has not identified electric, pedal-assist electric bikes with their own category, the 301 Action from the Office of the U.S. Trade Representative, lists HS 87.1160 “Motorcycles (including mopeds) and cycles; fitted with auxiliary motor, with electric motor for propulsion with or without side cars” among the goods to receive the penalty. It is important to note that this is only for “completed” electric bicycles and the source is from mainland China.
Furthermore, importers should note that the complete list is not finalised and may change before the final implementation.
At present, the non-motorized bicycle import duties stands at 11% for a completed product and bicycle parts range from 0 to 10% of the declared value. Ironically, more than 80% of a legal electric pedal-assist bicycle is made up of traditional bicycle parts, leaving the motor, controller, battery and display as the major added elements that change the bike to an e-Bike.
Electric bikes that originate from Taiwan are not subject to the same penalty, but the question under review is at what percentage of mainland imported items that make their way into the final assembly will change the original country of origin when shipped.
One of the motivations for this trade skirmish is to foster U.S. domestic manufacturing and “on-shoring” which may happen eventually, but for the immediate future, the fragility of an emerging market is in peril. But there is hope for those large enough and committed to the U.S. marketplace.
The use of Foreign Trade Zones is not new. In 1934 the U.S. Department of Commerce established the Foreign Trade-Zone Act. Fast forward to now and there are 175 unique FTZ sites throughout the U.S., providing more than 2,700 companies with some very unique manufacturing, assembly, and warehousing of goods that sit within a “No-Mans Land” of sorts.
FTZs allow companies to secure goods in designated areas around the United States where foreign and domestic merchandise is generally considered to be in international commerce and outside of US Customs territory. These bonded facilities are considered an extension of U.S. Customs and offer unique opportunities for both reduced tariffs and immediate cash flow savings.
A new White Paper has been published focused specifically on how importers of electric-assist bicycles from mainland China can actually reduce the proposed penalty while adding “Assembled in the USA” to the marketing moniker. It goes into detail on how there are inbound container fee savings, the ability to defer customs and duties payments until the goods leave the zone and how to use facilities inside and outside of the zone to blend into finished products at lower tariff levels.
An expert in the field of U.S. FTZs, as well as an authority on electric bicycles, Ray Verhelst pointed out, “the simple idea of tariff deferments can free-up cash flow for buyers immediately. Imagine avoiding the payment of a 25% tax on goods, typically due upon arrival, until the bicycles actually leave the zone.”
The idea of using a Foreign Trade Zone’s manufacturing/assembly facility offers the ability to merge foreign goods together with U.S. technology and labour, which can often change the harmonised code, providing a lower import duty rate.
Verhelst added: “The ability to import foreign materials, pieces, and parts into an Foreign Trade Zone, to where you can machine, finish, assemble, and export to other countries offers even greater opportunity, because when done inside the FTZ, there are no additional U.S. duties added to the finished products. It’s like they were never here.”
The paper points out how qualified companies can get state and local government support to help establish these types of operations, ranging from tax abatements, deferments, job training subsidies, and more.
The published paper is available for free via Cycling Industry News and is available by emailing the editor here.
What is a Foreign Trade Zone?
“Foreign-Trade Zones (FTZ) are secured, designated locations around the United States in or near a U.S. Customs Port of Entry where foreign and domestic merchandise is generally considered to be in international commerce and outside of US Customs territory. As a result, activated businesses in an FTZ can reduce or eliminate duty on imports and take advantage of other benefits to encourage foreign commerce within the United States.”