Important Updates to the U.S.-China Trade Dispute and Section 301 Tariffs

The trade dispute between the United States and China continues to develop with a number of actions taken by either party over the past month.

Actions taken by the U.S. against country of origin China imports are based on Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) and the corresponding Chinese countermeasures.  Several of these actions have occurred this month as shown below.

All of these events are stemming from the initial Section 301 investigation delivered to President Trump from the Department of Commerce that determined that the Chinese government had engaged in unreasonable or discriminatory activities that harm American intellectual property rights, innovation, and technology. China meanwhile has countered each action with its own retaliatory tariffs lodged against U.S. imports accusing the U.S. of starting a trade war.

The following is a recap of the key U.S. Section 301 and China tariff countermeasure events since March 2018:

• On March 22^nd, President Trump announcedand signed a Presidential Proclamation to impose 25% tariffs on the value of certain imports from China. The product lines to be included are aerospace, information and communication technology, and machinery.

• On April 6^th, in a Federal Register Notice, the USTR identified a proposed list of 1,333 tariff items to be subject to the additional 25% duties due to China’s unreasonable or discriminatory activities that burden or restrict U.S. commerce.

• On June 15^th, the USTR announced and followed up with a June 20^thFederal Register Notice, that there would be a 25% additional tariff applied to a reduced list of 818 tariff items (List 1) impacting $34 billion of Chinese imports effective on July 6^thand further proposed a 25% additional tariff on 284 tariff items (List 2) impacting $16 billion of Chinese imports.

• On June 15^th, China’s Customs Tariff Commission issued an announcement that it would counter the U.S. tariffs with 25% tariffs on a list of U.S. imports worth $34 billion effective July 6^th.

• On July 17^th, in a Federal Register Notice, the USTR proposed a third list of Section 301 duties (10%) on $200 billion of country of origin China products. The additional trade remedy action on 6,031 tariff items is in answer to China’s retaliation for Lists 1 and 2 and its “refusal to change its acts, policies, and practices”.

• On August 1^st, the USTR announced that the additional tariff applicable to List 3 will be increased from 10% to 25%.

• The deadline to request to appear at public hearing is August 13, 2018
• The deadline to file written comments is September 6, 2018.
  • (Federal eRulemaking Portal: http://www.regulations.gov,Docket # USTR-2018-0026)
• Public hearings will be held in Washington D.C. from August 20-23, 2018.
• Post-hearing rebuttal comments will be publicized on September 6, 2018.

• On August 3^rd, the China Customs Tariff Commission issued Taxation Committee Announcement #6 with potential countermeasures on $60 billion of U.S. imports against 5,207 tariff items that will be subject to additional duties ranging from 5% to 25% at a date to be announced.

• On August 7^th, in a statement, the USTR announced that List 2 had been finalized and that 279 tariff items will be subject to 25% additional duties effective on August 23^rd.

• On August 8^th, China Customs Tariff Commission issued an announcement that it would counter the U.S. tariffs with 25% tariffs on a list of U.S. imports worth $16 billion to be effective on August 23^rd.

Below are tables showing the Section 301 tariff lists and China retaliatory lists showing the key facts related to each:

SECTION 301	LIST 1	LIST 2	LIST 3
Effective Date	July 6th	August 23rd	TBD
Import Volume	$34 billion	$16 billion	$200 billion
Duty Rate	25%	25%	25%
# of Tariff Items	818	279	6,031
Finalized	YES	YES	NO
Tariff Lists	List 1	List 2	List 3

 

CHINA TARIFFS	1st SET	2nd SET	ANNEX 1	ANNEX 2	ANNEX 3	ANNEX 4
Effective Date	July 6th	August 23rd	TBD	TBD	TBD	TBD
Import Volume	$34 billion	$16 billion	$60 billion
Duty Rate	25%	25%	25%	20%	10%	5%
# of Tariff Items	545	333	2,493	1,078	974	662
Finalized	YES	YES	NO	NO	NO	NO
Tariff Lists	1st Set	2nd Set	PDF Links to Each Annex

 

Other important facts to know regarding Section 301

• Section 301 duties are recoverable through the duty drawback program.
• Any merchandise subject to the increased tariffs admitted into a U.S. foreign trade zone on or after the effective date of the increased tariffs would have to be admitted as “privileged foreign status” (PF) as defined in 19 CFR § 146.41, and are subject upon entry for consumption to the additional duty, except for “domestic” status products.
• Product exclusion requests may be filed regarding List 1, Docket # USTR-2018-0025:
• Click here to access the request form
• To submit requests via www.regulations.gov, enter document ID number USTR2018-0025-0001
• Effective from and retroactive to July 6^th
• Extending for one year from the date of publication of the exclusion determination in the Federal Register.
• Exclusions will be granted on a product basis; i.e., all imports not just the requester’s product.
• A separate request is required for each product.
• Requests accepted from all interested parties, including trade associations.
• The deadline for exclusion requests is October 9, 2018.
• Each request should address:
  • Whether or not the product is only available from China and whether it is available from U.S. or third country sources.
  • Whether or not the duty will cause severe economic harm to US interests.
  • Whether or not the product is strategically important or related to the Made in China 2025 policy or other similar policy.
  • Other pertinent information.
• Requests must include:
  • 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 eight-digit subheading.
    • Please note, the USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or trade names.
    • USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  • 10-digit subheading of the HTSUS.
  • Annual quantity and volume.
• The public has 14 days to comment and an additional seven days to reply.
• The USTR will evaluate each request on a case-by-case basis.
• The USTR will periodically announce decisions.
• Exclusion instructions for List 2 will be released soon.

Businesses need to be prepared

If you’re heavily invested in international trade, you should be working with your internal staff; customs, purchasing, finance, engineering, etc.  Make sure to coordinate with your trade partners; customs brokers, trade consultants, freight forwarders, etc.

It is critical to determine what your risk exposure might be and what you may be able to do to limit your exposure by making course corrections should an element of your supply chain be adversely affected.

• Identify your immediate and potential duty exposure for the impacted tariffs.
• Keep apprised of what may come next either from additional U.S. actions or further countermeasures from China on U.S. exports.
• Make sure your evaluation can be amended as necessary.
• Apply for product-specific exclusions.
• Consider the viability of sourcing items elsewhere.
• Double-check the articles falling in the affected HTS provisions are correctly classified.
• Consider the potential to modify and/or combine products for import such that the HTS classification no longer falls under these proclamations.
• Check the status of incoming vessels to ensure they arrive inside the port limits and entry is made prior to 12:01a.m. Eastern Daylight Time (EDT) on the applicable effective dates.