On May 9, 2019, the Office of the US Trade Representative (USTR) published in the Federal Register a notice announcing that the 10% duty on articles included on List 3 under Section 301 will increase to 25%. The notice also announces that, as promised, now that the duty rate is going to 25%, USTR will establish a product exclusion process for articles on List 3 (like has been done for articles included on Lists 1 and 2).
Interestingly, the notice has an exception to the effective date for the duty increase. The notice contains multiple references to the 25% rate becoming effective this Friday, May 10, 2019. For example, the notice states:
The Annex to this notice amends the Harmonized Tariff Schedule of the Unites to provide that the rate of additional duties for the September 2018 action [i.e., List 3] will increase to 25 percent on May 10, 2019.
However, the Annex (unlike previous Federal Register notices imposing the Section 301 duties), includes two separate conditions for the increase in duties to take effect. Specifically, it states:
Effective with respect to goods (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019, subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified . . . .
As a result, it appears that in order for the 25% duty rate to apply, the imported merchandise must be entered for consumption after 12:01 am ET Friday morning AND have been exported to the United States on or after Friday, May 10th. So, an entry of merchandise included on List 3 exported from China prior to May 10th would not be subject to the 25% duty rate even if it was entered after 12:01 am Friday (it would still be subject to the 10% rate).
US Customs and Border Protection (CBP) issued Cargo Systems Messaging Service (CSMS) message 19-000236 on May 9 and CSMS 19-000238 on May 10 that address how merchandise exported from China prior to May 10th, but entered for consumption in the United States on May 10th or thereafter, will be treated.
The good news is that CBP confirmed that such shipments are subject to the 10% duty rate (not the 25% duty rate). For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, report the following HTS numbers and duty rates:
HTS: 9903.88.03 and 9903.88.04
Duty Rate: 25 percent
For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and before June 1, 2019, and exported to the United States before May 10, 2019, report the following HTS number and duty rate:
Duty Rate: 10 percent
The subject imports of China that are entered into the United States on or after June 1, 2019 are subject to the 25 percent rate of additional duty under HTS 9903.88.03 and 9903.88.04.
On May 9, the U.S. Trade Representative’s Office released another notice that attempts to address the ‘shipments on the water’ issue (i.e., shipments exported from China before 12:01 am ET this morning, but entered for consumption in the United States on or after 12:01 am ET May 10).
The notice, which will be published in the Federal Register shortly, provides that such shipments will be subject to the 10% duty rate so long as they are entered for consumption, or withdrawn from warehouse for consumption, prior to June 1, 2019 (i.e., in the next 3 weeks). The notice creates a new HTS subheading for such shipments.
Assuming that the new HTS subheading is available in the ACE system (as CBP’s CSMS 19-000238 appears to confirm), this obviates the need for importers of these shipments to pay the 25% duty and claim a refund, or delay the filing of the entry summary, as originally suggested in CBP’s CSMS 19-000236.
On a related note, the negotiations are continuing here in Washington, DC today. We are expecting further updates (or at least tweets) over the weekend. Also, in response to the increase in duty rate from 10% to 25%, China announced that it was ready to take “necessary countermeasures” but did not specify what those countermeasures will be. Stay tuned. Interesting times.