Section 301 – US Imposes Duties on $200 Billion Worth of Chinese Imports

Dear Friends,

The Trump Administration announced earlier today that the U.S. is beginning the process to impose an additional 10% duty on a further $200 billion worth of Chinese imports

As you may recall, when the Administration announced its intent to impose duties on $50 billion worth of Chinese imports, the Chinese government announced an intent to retaliate on a comparable value of U.S. imports.  At that time, President Trump announced that if China retaliated on U.S. imports, the United States would impose an additional duty on a further $200 billion worth of Chinese imports (see our June 19th update).

The U.S. imposed an additional 25% duty on a first round of products worth $34 billion on July 6th and China imposed an additional 25% duty on a first round of products also worth $34 billion that same day.  Both countries are also considering imposing additional duty on an additional $16 billion worth of merchandise.

In response to China’s retaliation, the U.S. Trade Representative issued a press release and advance copy of a Federal Register notice this afternoon.  The notice states that the U.S. is considering imposing an additional 10% duty on $200 billion worth of Chinese imports.  Before doing so, the USTR will accept public comments and testimony at a hearing.  The notice includes the schedule, as well as the list of the 6,031 tariff subheadings covered by the $200 billion. In coming up with the list of covered HTS provisions, the notice provides as follows:

“In developing the list of tariff subheadings included in this proposed supplemental action, trade analysts considered products from across all sectors of the Chinese economy. The tariff subheadings considered by the analysts included subheadings that commenters suggested for inclusion in response to the April 6 notice. The selection process took account of likely impacts on U.S. consumers, and involved the removal of subheadings identified by analysts as likely to cause disruptions to the U.S. economy, as well as tariff lines subject to legal or administrative constraints.”

A copy of the press release and the notice are attached here for your reference:

It is clear that the U.S.-China trade war is real and that the Trump Administration is willing to accept meaningful U.S. casualties (i.e., harm to U.S. businesses with interests in China).  It is also clear that the range of imports impacted by the duties is growing (by necessity).

All companies that import articles from China should be developing short, medium, and long-term plans for coping with this trade war.  We are assisting numerous clients with this and would be happy to discuss options with you further.

Best regards,
Ted

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Section 301 – Product Exclusion Process

Dear Friends,

The U.S. Trade Representative issued a press release this afternoon that includes details on the process for seeking product-based exclusions from the additional duties being imposed on Chinese-origin articles under Section 301 (the first round of those duties went into effect earlier today).  An advance copy of the Federal Register notice containing the specifics for this process is attached for your reference.

 In summary, the product-based exclusion process is as follows:

* all requests to exclude a particular product must be filed by October 9, 2018 (90 days from today);

* there is an opportunity to file comments on such requests, and then for the requester to respond;

* if an exclusion request is granted, it will be effective back to July 6, 2018 (the effective date of this round of additional duties) and will be valid for one year from the date the exclusion approval is published in the Federal Register;

* exclusion requests should cover a “particular product” (this is broader than a just a part number and cannot be based on company-specific characteristics);

* exclusion requests may be filed by “interested persons, including trade associations” (which also suggests that the term “particular product” is meant to be interpreted broadly);

* each request must provide the rationale for the exclusion and, at a minimum, address (1) whether the particular product is available only from China, (2) whether the imposition of additional duties on this product will cause “severe economic harm” to the requestor or to other U.S. interests, and (3) whether the particular product is strategically important or related to China’s industrial policies, including “Made in China 2025”; and

* USTR will evaluate each request individually and take into account “whether the exclusion would undermine the objective of the Section 301 investigation”.

In terms of administering any approvals at the border, the notice also states that requestors may provide information on how U.S. Customs and Border Protection can administer the exclusion (i.e., how will CBP be able to differentiate between products covered by the exclusion and products not covered by the exclusion?).  Interestingly, the USTR’s press release makes it clear that one need not apply in order to benefit from an approval – i.e., approvals are product-specific, not company-specific (“Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. The U.S. Customs and Border Protection will apply the tariff exclusions based on the product.”).

The good news here is that (i) there is a product exclusion process (which should help address the impact the Section 301 duties are having on U.S. companies), (ii) petitions can be filed on a “product” basis, rather than on a single sku or part number basis, like with the Section 232 exclusion process, (iii) approvals will be retroactive to when the additional duties first went into effect (although it will be important to keep an eye on liquidation dates to be safe), and (iv) the USTR provided guidance on the factors that will be considered when reviewing requests.

The bad news is that there is no stated timeline for how long it will take the USTR to review and process exclusion requests.  Undoubtedly, the USTR is hoping that by broadening the scope of the petitions and the approvals to “particular products” it will result in fewer petitions being filed than have been filed at Commerce in the steel and aluminum Section 232 cases (i.e., more than 20,000 exclusion petitions filed and only 98 acted on in 3+ months = 51 years of processing time . . . .).  We believe that hope is misplaced and that the USTR will likely receive thousands of exclusion requests. 

Accordingly, it is important that any company impacted by the Section 301 duties, and considering filing a product exclusion petition, do so quickly.  We are assisting numerous clients with this process (which began before today) and would be happy to discuss with you how best to approach this effort now that we have these additional details.

We hope this is helpful.  If you have any questions, please let us know.

Best regards,
Ted

Trump Trade Agenda Presentation

Dear Friends,

Yesterday, I had the privilege of speaking at an industry-based international trade compliance forum in Houston.  My topic was ‘The Trump Trade Agenda:  Where Are We And Where Are We Going?’ (admittedly, I had more questions than answers to this question).  I addressed the Section 232 investigations on steel and aluminum, the Section 301 investigation on China, NAFTA renegotiation and few other trade issues that have begun to bubble up.  I thought you might find the presentation to be of interest: Trump on Trade Agenda.

If you have any comments or questions on the presentation, please let me know.

Best regards,

Ted

 

EU Retaliatory Tariffs – Enter into Force Today

Dear Friends,

As you may have heard, the EU has formally decided to impose retaliatory tariffs on certain products originating in the United States.  This is in response to President Trump’s decision to impose additional tariffs on EU steel and aluminium products.

The new additional tariffs will come into effect today, June 22nd.

List of affected items

The full list of affected EU tariff codes is set out in Annex I to Commission Implementing Regulation (EU) 2018/886, available here.  In almost all cases, products are subject to an additional duty of 25%.

The new tariffs affect all goods of US origin falling within the affected tariff codes that are imported into the EU from June 22nd, except for:

  • goods already exported from the US before 22 June (for which the importer must provide proof); and
  • goods for which an import licence exempting or reducing duty on the goods (e.g., by use of tariff quotas) has been obtained before 22 June.

As a result, if your goods have been shipped out of the US prior to the 22nd of June or if they are currently “on the water” or if  they are held under bond in the EU prior to the 22nd of June, they will not be affected by the additional tariffs.

The legislation also provides for additional tariffs on other product lines, which will take effect from the earlier of (i) 1 June 2021 or (ii) from the fifth day following a WTO ruling that the US is in violation of the WTO Agreement.  These products and tariff rates are listed in Annex II to the Regulation linked above.

Recommended actions

We suggest that you:

  • review the tariff codes for any products imported into the EU and identify those caught by these measures;
  • verify that none of those would qualify as “originating in the US”. We note that products that are manufactured in another country but have a high US content may qualify as ‘US-origin’ goods if the local manufacturing  / processing is not sufficient to confer origin. You should therefore carefully review the origin of products caught by the additional duties that have US content.

 

The situation remains fast-moving, and we note in particular recent news reports that suggest that the EU may offer to reduce its tariffs on automobile imports in exchange for relief from the new US measures.  If the US agrees, then the EU will drop its retaliatory measures.

Please do let us know if you have any questions on the new measures, or if we can assist in any way.

Best regards,

Ted

Section 301 – Escalation

Dear Friends,

Last night, the President issued a statement advising that the United States would impose a 10% duty on an additional $200 billion in imports from China, if China goes ahead with its plans to impose retaliatory duties on U.S. importsA copy of the President’s statement is attached for your reference.

In this latest round of escalating rhetoric, the President directed the U.S. Trade Representative to identify an additional $200 billion in imports from China (this is in addition to the first list of approx. $34 billion and the second list of approx. $16 billion) to hit with an additional 10% duty, if China goes ahead and imposes its proposed retaliatory duties on July 6th.  If China retaliates to this measure, then the United States will seek to impose duties on another $200 billion worth of imports from China.

The President is attempting to show China that he is serious about the forced technology transfer issue and about using duties to get China to change its behavior.  He is also demonstrating that he intends to use the U.S. trade deficit with China in his favor.  Since the U.S. imports far more from China (approx. $505 billion), than China imports from the United States (approx. $130 billion), President Trump appears to believe that he has the ability to raise the stakes beyond what China can afford (i.e., the U.S. is threatening to impose additional duties on $450 of the $505 billion worth of imports from China; China can only retaliate up to the $130 billion worth of imports from the United States).  Given the complexity of the relationship, it is not clear whether this is in fact the case (e.g., China has said it is ready for a trade war and could take action other than increasing customs duties).

What is clear, is that the imposition of additional duties is having a meaningful negative impact on many U.S. companies.  If duties are imposed on an additional $200 billion (or $400 billion) worth of imports from China, then more companies in more industries will be impacted (e.g., it is hard to imagine that the Administration will be able to avoid consumer products, as they have largely done to date, with the next list of $200 billion).  While there is still time for the two countries to reach a negotiated settlement and avoid a trade war (the first tranche of duties does not go into effect until July 6th), that does not appear likely, at this point.  As a result, all companies that import from China should be reviewing their options.  In particular, companies that import from wholly foreign-owned enterprises (“WFOEs”) should consider joining our coalition of companies pursuing a categorical exemption from the additional duties.  We continue to be in discussions with different parts of the Administration and with members of Congress on a possible exemption for such imports.

We trust this is helpful.  If you have any questions, or if you would like to discuss these issues further, please let us know.

Best regards,
Ted

Section 301 – Advance Copy of Federal Register Notice

Dear Friends,

Further to the below, the U.S. Trade Representative published on its website today an advance copy of the Federal Register notice related to Friday’s announcement.  A copy is attached here for your reference.

The notice confirms that an additional duty of 25% will be imposed on articles classified in the tariff subheadings included in Annex A of the notice as of July 6, 2018.  The notice also creates a new Chapter 99 subheading for entry purposes (entries of articles classified in the tariff subheadings identified in Annex A have to use the new Chapter 99 classification as a secondary classification, so the additional 25% duty can be assessed) and addresses foreign trade zone admissions.

The notice also sets the schedule for providing comments on the second list of articles proposed to be assessed an additional 25% duty.  This is the list of 284 tariff classifications the interagency Section 301 Committee identified as benefitting from China’s industrial policies, including Made in China 2025 (Annex C in the attached notice).  These 284 tariff classifications represent approximately $16 billion worth of imports from China.  The public comment schedule is as follows:

  • June 29, 2018 – deadline to file a notice requesting to provide testimony at the public hearing
  • July 23, 2018 – written comments due
  • July 24, 2018 – public hearing at the U.S. International Trade Commission
  • July 31, 2018 – rebuttal, post-hearing comments due

This notice does not provide the specifics for the product petition exclusion process referenced on Friday.  Instead, this notice says that the details of the product petition exclusion process will be included in a future Federal Register notice.

We are assisting numerous clients detail with these issues (e.g., re-aligning supply chains, filing comments, seeking Congressional support for exclusion requests, etc.) and would be happy to discuss this with you further, if helpful.

Best regards,

Ted

 

Section 301 – China’s Response

Dear Friends,

As expected, China has responded to today’s U.S. announcement with one of its own. 

 

China’s announcement mirrors the position adopted by the United States.  China will impose an additional 25% customs duty on approximately $34 billion worth of imports from the United States, as of July 6, 2018.  This list includes various agricultural products, certain food/juice/beverages, automobiles, auto parts, etc.  China is also considering imposing a 25% customs duty on a second list of U.S. products worth approximately $16 billion.  Both lists are attached here (although in Chinese, the tariff classifications are provided). 

This is the latest, but undoubtedly not the last, round in this dispute.  We expect that the U.S. administration will issue a response (likely in a tweet, at least initially) over the weekend (if not sooner).  A few months back, when China threatened to retaliate for any U.S. duties imposed under section 301, President Trump said he would up the ante by imposing a 25% customs duty on an additional $100 billion worth of imports from China.  We may now get to see if he is willing to make good on that threat.

Best regards,
Ted