China 301 Tariffs: Exclusion Request “Stop Sign”

In my first article I briefly described the process for filing an exclusion request with USTR for impacted goods appearing on List 4A. While the benefit of having a request granted is undeniable – the 15% tariff would be suspended for a given period – there is also a cost to consider in corporate time or actual dollars paid to outside advisors.

Before an interested party begins the costly process to submit one or more exclusion requests it must ask itself, “What is the chance our request would get tripped up and denied?” If denial is certain or near certain it may be prudent to refrain from filing the request in the first place.

Any product that is tied to China’s “Made in China 2025” program would appear to present one of the more common stop signs.

Elements of the Made in China 2025 Program

China has set forth ambitious technology-related industrial policies in its efforts to overtake the technological and scientific advances of the West and with the ambition to surpass it. In 2015 the Chinese State Council released the ‘‘Made in China 2025 Notice.”

Essentially, China has identified ten industries it wants to dominate by year 2025: 1) Information Technology, 2) Robotics, 3) Green Energy and Green Vehicles, 4) Aerospace Equipment, 5) Ocean Engineering, 6) Railway Equipment, 7) Power Equipment 8) New Equipment, 9) Medicine and Medical Devices, and 10) Agriculture Machinery.

Since 2006 China has articulated the concept of Introducing, Digesting, Absorbing, and Reinnovating foreign intellectual property and technology (IDAR). The IDAR approach involves steps which hinge on close collaboration between the Chinese government and Chinese industry to take full advantage of foreign technologies. Further, China has set “self-sufficiency” targets for each industry that are to be filled by Chinese producers both domestically and globally. An interested party considering the filing of an exclusion from China 301 Tariff must not ignore those vital details.

Is Your Product Related to China 2025?

The USTR asks this question directly in its Portal Questionnaire. A Silicon Valley high tech company recently asked us for advice in avoiding the 301 China Tariff. This company imported a product that is squarely contained within one of the10 industry sectors targeted by the China 2025 Program. we advised it to not bother filing an exclusion request which would most certainly be denied. Instead, we advised it to consider other options, including tariff engineering whereby final processing/production would be shifted to another jurisdiction so that origin would be conferred in a third country, whose products are not subject to a 301 Tariff. This alternative is itself an expensive proposition and the company can gauge its feasibility.

Whether an interested party’s product is caught up in China 2025 is in all cases a threshold question which should be examined up front.

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