US Trade Actions Update – List 4A, China 301 Tariffs

Approximately 800 Exclusion Requests filed as of today.

The filing period is of open until January 31 and nothing is lost as the exclusion if granted is retroactive back to the September 1 imposition of the duty.

ITC has been deeply engaged in mitigation strategies for clients. They range from:

1. Exclusion Requests from the China tariffs. We have submitted or are in mid-stream for almost 20 such requests and have a really streamlined protocol in place.

2. Shifting production to third countries (Dominican Republic and Vietnam for example); and

3. Valuation strategies, including First Sale for Export; and duty drawback refund applications.

August 2019 $300 Billion Tariff Action (List 4A) China Tariffs—FAQ

Which Goods are Covered by List 4A?

The August 2019 action covers the products classified within the Harmonized Tariff Schedule of the United States (HTSUS) subheadings set out in Annex A and Annex C of the notice published at 84 FR 43304 (August 20, 2019) as modified by 84 FR 45821 (August 30, 2019).

Link to 4A:  https://ustr.gov/sites/default/files/enforcement/301Investigations/Notice_of_Modification_%28List_4A_and_List_4B%29.pdf

Which parties are entitled to file an exclusion request?

Requestors must provide their relationship to the product (Importer, U.S. Producer, Purchaser, Industry Association, Other)

How does a party file an exclusion request?

Only claims submitted on the USTR Web portal will be accepted. Here is a link to the Portal:

https://exclusions.ustr.gov/portal/s/

When is the deadline to file?

The process for the filing of exclusion requests was announced with an application open season of October 31, 2019-January 31, 2020. 

How long is USTR taking to adjudicate the requests?

There is no set time frame but decisions are usually delivered a few months after submission.

If granted how long will the exemption be in effect?

If granted, the exclusion will have retroactive effect to the date of first imposition (September 1, 2019) and will have a life of 1-year from the date of publication in the Federal Register.

What happens to product entered into the US before a grant is issues?

Care should be taken to preserve the right to a refund while the application is pending by requesting that the liquidation of the entry be suspended or that protective protests are filed after liquidation.

What percentage of requests are granted?

A review of the applications previously filed for exclusions of the tariffs imposed by Lists 1 and 2 reveals that the exclusions are granted on an exceptional basis—approximately 1/3 of the requests were granted. 

What is a single product?

Each request must cover a “single product” as defined by the USTR for purposes of the request process.

The starting point is the 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion.

How should I further describe my product?

Each request demands a product name and a detailed product description which includes, but is not limited to, its physical characteristics (e.g., dimensions, weight, material composition, etc.). 

It is also necessary to discuss the product’s function, application (whether the product is designed to function in or with a particular machine or other device), the unit value of the product (please provide range if necessary), principal use, and any unique physical features that distinguish it from other products within the covered 8-digit HTSUS subheading.

Can I upload documents in support of my request?

Yes you will be given the opportunity to upload sales brochures and literature ss well as pictures.

What kind of corporate financial data will I be expected to produce?

Requestors must provide their specific data on the annual quantity and value of the Chinese-origin product, domestic product, and third-country product the Requestor purchased, in 2017, 2018, and the first half of 2019 (January – June). 

Requestors must provide information regarding their company’s gross revenues for 2018 and the first half of 2019 (January – June). 

For imports sold as final products, Requestors must provide the percentage of their total gross sales in 2018 that accounted for sales of the Chinese-origin product.

For imports used in the production of final products, Requestors must provide the percentage of the total cost of producing the final product(s) the Chinese-origin input accounts for and the percentage of their total gross sales in 2018 that sales of the final product(s) accounted for. 

Will my exclusion request be open to public inspection?

Most of the request will be viewable by the public. However, required information regarding the Requestor’s purchases and gross sales and revenue is business confidential and the information entered will not be publicly viewable. 

What if the product is subject to the China 2025 Program?

The final question in the Portal asks if the particular product of concern is “strategically important or related to “Made in China 2025” or other Chinese industrial programs.”

The “Made in China 2025” policy highlighted ten industries critical to advancing China’s economic development plan, including aviation, artificial intelligence, robotics, and advanced medical devices. China’s plan focuses on promoting high-tech innovation and intellectual property acquisition to drive Chinese manufacturing up the value chain.

If the requestor answers “yes” there is a significant chance that the USTR will deny the claim.

Will other parties be given an opportunity to comment upon my exclusion request?

Yes – for a period up to 14 days after a party files a claim a respondent will be able to make public comments in support of or opposed to your request. These comments will be viewable by the public and a Requestor will have 7 days to file a rebuttal.

Can ITC assist with the filing of an exclusion request?

ITC has filed List 3 requests for exclusion and is drafting requests for List 4A. Parties contemplating filing an exclusion request can contact us for more information and assistance.

CBP Ignoring Regulations and Misapplying Court Cases in Denying GSP Eligibility

With the “global factory” concept many imported goods have been made with parts and processing steps that have been produced in or undertaken in more than a single foreign country. The question invariably arises, “What is the country of origin?” The answer to this question will often impact the applicable US duty rate. This is especially true now, when the product could be subject to an additional tariff if the origin were China. At the same time, origin status will determine eligibility for a lower duty rate, or even duty-free entry, under a tariff preference program, such as the Generalized System of Preferences (GSP).

In the GSP context, eligibility of an imported product for GSP will turn, inter alia, on the imported article being a “product of” the beneficiary developing country. CBP regulations spell out the test to determine origin here — simple combining or packaging operation will not suffice. A substantial transformation of the product in the beneficiary developing country must ensue.

In well-settled case law the substantial transformation test for origin should be based on a change in “name, character, or use.” In the context of GSP, the customs regulations prescribe that the necessary “product of” criterion will lie where there is a complex assembly or there is a fabrication-plus-assembly.

Nonetheless, in a flurry of recent rulings such as no. H303816, CBP has denied GSP eligibility for products that meet the origin tests under the regulations and settled case law, such as Uniden and Sassy. Instead, CBP has cited to the Energizer Battery decision, which was not even a GSP case, but one concerned with government procurement in the TAA context. The effect has been to ignore established law in favor of a simplistic and far-fetched “pre-determined end-use” principle.

For more details on GSP eligibility and CBP’s muddled application of the Energizer Battery case to GSP, origin and government procurement questions, refer to Mark Neville’s article in the September 2019 edition of the Journal of International Trade, “CBP’s Hammer: Misuse of Energizer Battery.”

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.

List 4 China Tariffs—A Possible Exit Strategy

Under Section 301 of the Trade Act of 1974, the US has the right to retaliate against unfair foreign trade practices.  Over the last year the US has slapped additional tariffs of between 10 and 25 % on almost all goods of Chinese origin.  As its name implies, these tariffs are on top of the normal customs duties. 

The tariffs have been rolled out in various Lists organized on an HTS basis.  The first three Lists hit goods with a combined $250 billion in annual imports from China.

The 4th and final List assesses additional duties of 15% and covers the remaining $300 Billion worth of annual Chinese imports, many of them apparel and other consumer goods.  It has been bifurcated into two parts – List 4A came into effect on September 1 while List 4B will be effective December 15.  Note–the 15% tariff may be increased to the now-standard 25% tariff level.

Exclusion Requests: Three Month Window

The USTR has established procedures whereby importers and others (trade associations, Chinese producers) can petition for exclusions from the China 301 tariffs.  The exclusions function as exemptions. 

The window to file such requests for the first three Lists has closed.  But the period to request an exclusion from the List 4A tariff hit has just been announced.  

Stakeholders will have from October 31 to noon on January 31, 2020 to submit exclusion requests via the USTR web portal.  If granted, the exclusions are good for a one-year period but they have retroactive effect, as well, so importers will want to take steps to protect their rights (suspended liquidations, protests) in the face of the steady liquidation of entries.

Request Process

The request process is very nuanced and has been altered slightly from the List 3 process.  For instance, the exclusion request must be made on a 10-digit HTS basis rather than the former 8-digit approach.  Also note that this is a public process, with open access to all of the filings.  There is a provision for the protection of business confidential information, such as purchase history.  Also know that domestic competitors can file negative comments.

We Can Help

ITC has filed List 3 requests for exclusion.  Interested List 4 stakeholders can contact us for more information and assistance.