The Customs Tariff Commission ("CTC") of the Ministry of Finance of the PRC on 11 September 2019 announced its first batch of tariff exemptions (List 1 and List 2, "Exemption Lists") for 16 U.S. products, including some lubricants and anti-cancer drugs, as well as animal feed ingredients such as whey protein, fish meal, and shrimp and prawn seedlings.
In response to the Section 301 duties imposed by United States Trade Representative ("USTR"), the Chinese government to date has imposed tariffs on selected U.S. import goods in the following three batches of lists:
- 25 percent ad valorem rate of duties on US$ 34 billion of U.S. goods listed in List 1A, effective on 6 July 2018, per the CTC's notice on 16 June 2018;
- 25 percent ad valorem rate of duties on US$ 16 billion of U.S. goods listed in List 1B, effective on 23 August 2018, per the CTC's notice on 8 August 2018;
- 5 to 25 percent ad valorem rate of duties on US$ 60 billion of U.S. goods listed in List 2, effective on 1 June 2019, per the CTC's notice on 13 May 2019;
- 5 or 10 percent ad valorem rate of duties on US$ 75 billion of U.S. goods listed in List 3A effective on 1 September 2019, and List 3B, effective on 15 December 2019, per the CTC's notice on 23 August 2019.
According to the CTC's announcement on 13 May, 2019, it has implemented a tariff exclusion procedure through which qualified organizations and companies can submit exclusion requests at CTC's designated portal (https://gszx.mof.gov.cn/) within below time periods of two launched phases.
- Phase One, 3 June 5 July, 2019: Qualified entities can apply for an exclusion from Chinese tariffs imposed on U.S. import products in Lists 1A and 1B;
- Phase Two, 2 September 18 October, 2019: Qualified entities can apply for an exclusion from Chinese tariffs imposed on U.S. import products in List 2.
Tariff Exemption Lists
The Chinese government has begun accepting applications for tariff exemptions in May. It is the first time they have stated which products will be excluded. The two Exemption Lists took effect on 17 September 2019 and are valid for a year through 16 September 2020. Products on these two Exemption Lists will not be subject to additional duties imposed by China on U.S. goods. According to the CTC's announcement, Chinese importers can apply to China Customs within 6 months from the issuance date of the Exemption Lists for a refund of tariffs already levied on 12 of the products in List 1. Four products in List 2, including whey protein, are eligible for the exemption but not for refunds.
Although the Exemption Lists do not include major U.S. goods subject to tariffs, like soybeans or meat, these lists could still be seen as a positive signal by the Chinese government to show a gesture of sincerity towards the U.S. ahead of minister-level talks in the forthcoming October. CTC further in its announcement stated that it will continue to review exemption requests and announce new lists in the future.
Phase Two Exclusion Process
For the exclusion applications of Phase Two, applicants can submit their requests from this point through 18 October 2019. As described below, CTC largely adopted the same standards and requirements of tariff exclusion process of Phase One.
- Qualified applicants Interested parties, including entities located in China, industrial associations or chambers of commerce that engage in import, production or use of goods listed in the List 2, are eligible to apply for a Chinese tariff exemption. Although U.S. exporters, trading companies or manufacturers are not qualified for a direct applicant, it is recommended that US interested parties work and coordinate with your Chinese counterpart contacts to have them apply for the tariff exemption.
- Submission requirements Requests need to identify the HS customs code (8-digit numbers) for the product. If the application contains multiple items under one 8-digit HS code, each type of item (10-digit HS code) would require a separate form. For a same 8digit HS code, if the industrial association has compiled information and submitted applications on behalf of relevant entities, such entities then cannot submit a request for the same item to CTC. However, when one HS code product involves multiple applicants, each applicant can submit its own application.
- Form contents and criteria Similar to the exclusion procedure for Phase One, the request form is composed of several major parts: product information such as product name, HS customs code, usage, import data (volume and value) of 2017-2019, impact of proposed tariff on entities and exclusion reasons. The form also asks whether alternative product is available in China or third countries, whether imposition of additional tariffs would cause severe economic harm to the requester, and whether the additional tariffs would cause material negative structural impact on industry development, technology development, employment, environmental protection and etc. Although CTC has a limit of no more than 800 words on the exclusion reason, it does allow applicant to submit photos and illustrative description materials to demonstrate how representative its product is in the industry.
- Scope of exemption Based on the scope of products that were applied under the HS code, exemption upon approval will be applicable to either entire group of products or certain product items under one 8-digit HS code. Once an item gets exempted from the Chinese tariffs, the relevant interest parties in the industry even without submitting an exclusion application can be eligible for a same treatment.
Reviewing the timeline of CTC's review of Phase One exclusion applications, CTC spent two months before it released its first batch of exemption decision on products contained in the List 1A and List 1B. We anticipate that the Chinese government could exempt more U.S. products from its tariffs to ease tensions with the United States as part of the ongoing negotiations. Submitting a request is likely worthwhile for businesses that have already paid tariffs or expects to in the near future, as the process involves meaningful review and could result in a significant refund of tariffs already paid and an exemption of future tariffs.