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The Time is Now: Here’s the Latest on Avoiding China Tariffs

As part of the Trump Administration’s longstanding “trade war” with China over Chinese government trade practices related to technology transfer, intellectual property, and innovation that the Administration has determined to be unreasonable and burdensome to US commerce, since 2018 the President has imposed retaliatory tariffs on four lists of 10,622 full or partial Harmonized Tariff Schedule (HTS) lines of Chinese goods valued at approximately $550 billion per annum under Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411. The US Trade Representative (USTR) has established a process for interested parties to request that particular products be excluded from these tariffs, which has now closed for the first three lists and is gearing up for the fourth.

Current Status of the China Section 301 Tariffs

Despite a September 3 proposal (84 FR 46212) to escalate tariffs on Lists 1 through 3 to 30% ad valorem from 25%, President Trump announced earlier this month that he would delay the increase after reaching, in principle, a “very substantial phase one deal” with China involving market access for US agricultural goods and financial services companies. Although there was speculation that an agreement could be signed by Presidents Trump and Xi at the upcoming APEC meeting in Chile in November 2019, Chile has cancelled the APEC meeting due to internal issues and there is no word yet on next steps regarding an agreement between Trump and Chi. Accordingly duties remain at 25% for Lists 1 – 3 and at 15% for List 4A with an implementation date of December 15, 2019 for 15% on List 4B.

Comments on Extensions of Earliest List 1 Exclusions Due November 30

USTR has completed its review for all List 1 and List 2 exclusion requests, granting 33.8% of the 10,814 requests filed for List 1, and 37.4% of the 2,869 for List 2. Regarding List 3, USTR published the third round of exclusions on October 28, 2019 (84 FR 57803), covering 83 product categories. Of the 30,327 List 3 requests filed, USTR has now granted 156 requests in three rounds of exclusions, conditionally approved another 123 subject to review for administrability, and denied 2,018.

The earliest List 1 exclusions, however, are scheduled to expire on December 28, one year after they were granted. On October 28, USTR issued a request for comments as to whether any of those exclusions should be extended for up to one year. USTR’s evaluation will focus on whether the particular product remains available only from China, considering changes in the global supply chain and efforts undertaken to source the product from outside of China since the imposition of the tariff, and whether the imposition of additional duties on the products will result in severe economic harm to the commenter or other US interests.

Comments, which should contain certain data elements and be submitted in a format as provided by the notice, will be accepted at www.regulations.gov from November 1 through 30. Companies who have exclusions slated to expire on December 28, and who would like to have their exclusions continued for another year, are encouraged to respond to USTR’s request for comments. It is anticipated that the failure to respond and provide updated information as to why the exclusions should be extended will likely result in the termination of such exclusions.

List 4A Exclusion Request Period to Open October 31

As explained in an earlier alert, on August 20 USTR published the fourth list of Chinese products (84 FR 43304), valued at approximately $300 billion, to be subject to an additional 10% duty—which, on August 30, it raised to 15% (84 FR 45821). The first half of the list, List 4A, consisting of about $125 billion of goods such as agricultural products, iron and steel products, motor vehicle products, housewares, and clothing where China’s share of global US imports is less than 75%, took effect on September 1.

On October 24, USTR published a Federal Register notice (84 FR 57144) confirming that it will begin accepting requests to exclude particular products from List 4A on Thursday, October 31 at noon ET. According to USTR, the List 4A exclusion process will be largely the same as the process for List 3. All requests must be submitted through USTR’s online exclusion request processing portal at exclusions.ustr.gov. Each request must identify a particular product and provide supporting data and the rationale for the requested exclusion, and will be evaluated on a case-by-case basis. A 14-day public comment period will follow each submission. The filing period will close on January 31, 2020.

A List 4 exclusion request must identify a particular product with a complete and detailed description using only criteria that can be made available for public inspection. This should include physical characteristics such as dimensions, weight, and material composition, the unit value, and the product’s function, application, and principal use. Supplemental documentation may be provided for this purpose. A separate request must be submitted for each product with unique physical features, unless the products are comparable.

The following information must also be provided in the request:

  • The 10-digit HTS item number. A separate request must be submitted for each product with a different item number. Filers might apply for a US Customs and Border Protection (CBP) classification ruling to assist.
  • Whether the product is subject to an antidumping or countervailing duty order.
  • The requester’s relationship to the product. The requester may be an importer, domestic producer, purchasers, industry association, or other interested party.
  • The requester’s annual and quarterly value and quantity of Chinese, US, and third-country purchases of the product, gross revenues, and percentage of costs of production or gross sales for which the product accounts. This information will be designated business confidential.
  • Whether the requester submitted exclusion requests for Lists 1 through 3.

Regarding the rationale for the request, the application must address the following:

  • Whether the product or a comparable product is available only from China, or also from US or third-country sources, and whether the requester has attempted to source the product from the United States or a third country. This information may be designated business confidential.
  • Whether the imposition of additional duties on the product will cause severe economic harm to the requester or other US interests. This information will be designated business confidential.
  • Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.

The second half of the list, List 4B, is still scheduled to take effect at 15% on December 15. Although USTR has committed to an exclusion process for all of List 4, no timetable regarding the remaining products has yet been announced.

All exclusions are valid retroactively to the date that the tariff took effect. Therefore, if you have, or believe your product subject to the Section 301 tariffs may be covered by, a pending exclusion request or granted exclusion, it is essential that you preserve your right to duty refunds, as discussed in an earlier alert. In addition, those with pending List 3 requests are advised to be alert for requests from USTR for additional information on the applications.

Arent Fox has experienced customs attorneys to help you navigate the Section 301 tariffs. Exclusion requests filed by Arent Fox have experienced an overall significantly higher than average success rate, with multimillion dollar savings being achieved by clients. In addition to filing exclusion requests, our attorneys can assist with advising on classification and obtaining customs classification rulings, responding to additional information requests, filing exclusion extension comments, preserving the right to duty refunds on pending exclusion requests or granted extensions, and obtaining refunds on granted extensions.

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