On July 6, 2018, the implementation day for the Section 301 “List 1” duties, the United States Trade Representative released the procedures for filing exclusion requests for List 1 products subject to the 25 percent tariff pursuant to Section 301 of the Trade Act of 1974.
On the same day, China confirmed its retaliatory tariffs, prompting the Trump Administration to publish a new list of products (“List 3”), proposing an additional 10 percent tariff on 6,031 product lines worth approximately $200 billion.
Arent Fox has developed a program for analyzing the products on List 1, List 2, and List 3 in order to determine the impact from Section 301 tariffs on companies and assist them in developing strategic duty mitigation alternatives. Companies are urged to be strategic in considering a request for exclusion as there are several factors to be considered apart from the data required. To receive a Section 301 tariff analysis of your company’s exposure, please contact any of the authors of this Alert or the Arent Fox professional that usually handles your matters.
List 1 and List 2: Current and Proposed 25 Percent Tariffs
As we reported in our earlier alert, pursuant to the findings based on Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411), on June 15, 2018 the USTR released two product lists that would be subject to an additional 25 percent ad valorem tariff:
- List 1 covers 818 product lines worth approximately $34 billion in Chinese imports and has been in effect since July 6, 2018 (provided as Annexes A and B to the June 15, 2018 Federal Register notice).
- List 2 covers 284 product lines worth approximately $16 billion in Chinese imports and is currently undergoing review through a public notice and comment process, which will include a hearing on July 24, 2018 (provided as Annex C to the June 15, 2018 Federal Register notice).
According to the procedures outlined in the USTR’s July 6 notice, granted exclusions for List 1 products will apply retroactively to the July 6 date of the imposition of the additional duties. Exclusions for List 1 products will be valid for one year after the publication of the determination in the Federal Register. Exclusion requests must be filed by October 9, 2018.
All exclusion requests for List 1 products must include the following information:
- Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading;
- The 10-digit subheading of the Harmonized Tariff Schedule of the United States (HTSUS) applicable to the particular product requested for exclusion;
- Information on the ability of US Customs and Border Protection (CBP) to administer the exclusion; and
- The annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years. If precise annual quantity and value information are not available, please provide an estimate and explain the basis for the estimation.
In a call with the USTR’s office, it was confirmed that USTR wants targeted exclusions, and recommended that parties seeking exclusions for their products submit separate requests for each 10-digit HTSUS subheading covering products for which exclusions are being sought. The USTR official noted that this was the preferred manner for submitting requests, even if it resulted in repetitive requests for similar products that fell into different HTSUS subheadings.
The USTR will evaluate each request on a case-by-case basis and periodically announce decisions on pending requests. In making determinations, the USTR will consider whether the exclusion would undermine the objective of the Section 301 investigation based on the following criteria:
- Whether the particular product is available only from China, i.e. whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries;
- Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other US interests;
- Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs;
- Any other information or data that they consider relevant to an evaluation of the request.
Parties may submit public and business confidential versions of exclusion requests. The public version will be posted to docket number USTR-2018-0025 on www.regulations.gov. After requests have been posted, parties will have 14 days to file responses or objections to the requests. Any rebuttal comments are due seven days after the conclusion of the 14-day response period.
List 3: Proposed 10 Percent Tariffs
Published on July 10, the proposed modification to the Section 301 tariffs via List 3 is a supplemental action, maintaining the 25 percent ad valorem tariff on List 1 and List 2 products, and adding a 10 percent ad valoremtariff on the List 3 products.
List 3 consists of approximately 6,031 product lines defined at eight-digit level of the Harmonized Tariff Scheduled of the United States (“HTSUS”) in the attached Annex. The proposed tariffs only apply to goods of Chinese-origin and cover products and parts within 81 Chapters of the HTSUS (i.e., Chapters 2 – 5, 7 – 8, 10 – 12, 14 – 17, 19 – 29, 31 – 48, 50 – 60, 65, 67 – 91, 94, and 96 – 97). The commodities include:
- Food Products: meat, seafood, butter, eggs, vegetables, fruit, nuts, grains, prepared foods;
- Tobacco Products;
- Personal Care Products: soap, shampoo, makeup;
- Chemicals and Minerals;
- Petroleum and Fuel Products;
- Wood Products: wood, plywood, boards, building materials;
- Paper Products: wood pulp, paperboard, various types of paper;
- Textile Materials: wool products, yarns and threads, fabrics;
- Metal Articles: precious metals, articles of metals, fasteners, other articles of various metals (iron, steel, copper, nickel, aluminum, among others), tools;
- Vehicles and Automotive items: engines, bodies, auto parts, tires;
- Machines and Appliances: printing machines, cutting machines, drilling machines, sewing machines, washers and dryers, vacuums, heaters, air conditioners, refrigerators;
- Consumer Products: handbags, luggage, leather accessories, bicycles, recreational sporting goods, furniture;
- Consumer Electronics: certain computer parts and equipment (excluding laptops), telecommunications equipment (including Apple Watches); and
- Optical Instruments and Appliances.
The Section 301 tariff applicable to List 3 products will not become effective until after a notice and comment period, which will include a public hearing. The USTR’s notice includes the following timeline:
- July 27, 2018: Interested persons must file requests to appear at the hearing, summaries of expected testimony, and any pre-hearing submissions.
- August 17, 2018: Interested persons must file written comments with respect to any aspect of the proposed action, including the specific products covered, the rate of duty, and the appropriate aggregate level of trade to be covered by additional duties. USTR also requests that comments address whether the tariff will be effective in reducing China’s harmful acts, policies, and practices and whether the tariff on a particular product would disproportionately harm US interests.
- August 20-23, 2018: A public hearing before the Section 301 Committee at the International Trade Commission at 9:30 am.
- August 30, 2018: Parties must submit post-hearing rebuttal comments.
Section 301 Tariff Impact from List 1, List 2, and List 3
Due to the significant potential impact these additional duties may have on a wide-range of products from China, importers are urged to review their imports from China and, if they are importing any of the products on List 1, List 2, and List 3, to consider, at a minimum, filing written comments and possibly appearing at the public hearing. As noted above, Arent Fox has developed a program to assist importers in estimating the impact based on prior imports.