Section 301 — The U.S. Imposes Additional Duties on ~$200 Billion Worth of Chinese-Origin Imports

Dear Friends,

President Trump announced today that the United States would be moving ahead to impose additional duties on a further $200 billion worth of Chinese-origin imports (referred to as ’List 3’).  According to the announcement, the additional duties will start at 10% and run through the end of the year.  If the matter has not been resolved satisfactorily by then, the rate will be increased to 25% on January 1, 2019.  The additional duties will become effective next Monday, September 24, 2018.  A copy of the Statement from the President is attached for your reference: 

The additional duties will apply to Chinese-origin goods classified in the tariff subheadings included on the final list.  This list has not been published yet, but, given the effective date (a week from now), it is expected in the next day or two.  The Section 301 Committee has been considering the comments and testimony received on the list of 6,031 tariff subheadings originally proposed for List 3.  It is being reported that a relatively small number of tariff subheadings (a few hundred) are being removed from the final list as a result of this process.

Once the final List 3 is published, it is widely expected that China will retaliate by imposing additional duties on a list of U.S.-origin products worth approximately $60 billion.  It is also being reported that China may decline any invitation issued by the United States to begin negotiations until after the midterm elections and/or may engage other levers domestically to squeeze U.S. companies doing business in China.

If China does retaliate, the President’s statement says that the Administration “will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”  This would be List 4 and it would cover all of the remaining imports from China.

This is the latest (and undoubtedly not the last) salvo in the on-going trade war between the United States and China.  Unfortunately, it is hard to view this salvo as being effective.  Rather than force the parties to the table, an additional 10% duty is arguably offset by the declining value of the yuan (which is down high single-digit percentages in a year) and is likely going to be viewed as a sign of wavering resolve from a president in a contentious midterm election year.  In short, today’s announcement will likely prolong the trade war, rather than help bring it to a speedy conclusion (which, in all fairness, may be the plan after all – if the war drags on long enough, companies will start to leave the war zone . . .).

We hope this is helpful.  If you have any questions about the Section 301 duties (or China’s retaliation), please let us know.

Best regards,

Ted

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Miscellaneous Tariff Bill – Signed into Law!

Dear Friends,

Further to the below, President Trump signed the Miscellaneous Tariff Bill Act of 2018 into law yesterday. 

All companies should review the list of products included in the MTB.  The provisions are not (supposed to be) company-specific.  Stated differently, any company that imports an article covered by a MTB description can claim the duty benefit (even if you were not the proponent of the provision). 

Also, keep in mind that the MTB only impacts the Column 1, General rates of duty for covered articles (i.e., the Most Favored Nation/Normal Trade Relations rates).  The MTB does not change or otherwise impact Section 232 or Section 301 duties; those still apply.

If you have any questions about the MTB, please let us know.

Best regards,
Ted


Dear Friends,

Further to the below, earlier this week, the House of Representatives took up the Miscellaneous Tariff Bill Act of 2018 (H.R. 4318) and passed the version approved by the Senate back in July.  The bill will now be sent to the President for signature.  It is being reported that the President is willing to sign it, but stay tuned for more details.

If enacted, the MTB could provide a needed boost to U.S. manufacturers (and others).

If you have any questions about the MTB, please let us know.

Best regards,
Ted

Section 301 — US Finalizes List 2

Dear Friends,

The U.S. Trade Representative issued a press release announcing the imposition of an 25% duty on a finalized ‘List 2’ yesterday (as you will recall, List 2 is the $16 billion worth of Chinese imports published on June 18, 2018) .  The finalized list contains 279 of the 284 HTS subheadings originally proposed to be covered.  The duties will be imposed on covered articles beginning on August 23, 2018.  The press release states that a notice will be published in the Federal Register shortly and that notice will include details on how interested parties can file a product exclusion petition.  A copy of the press release is attached here together with the finalized List 2.

The recent escalation of trade tensions (e.g., the finalization of List 2, China’s likely retaliation, President Trump increasing the List 3 duties from 10% to 25%, China announcing its intention to impose additional duties on a further $60 billion worth of U.S. imports in response, etc.), and the lack of meaningful negotiations to date, suggests that the duties (on both sides) will be around for awhile.  As a result, all companies that import from China should be reviewing their sourcing options and devising short, medium and long terms pans for coping (e.g., possibility of moving certain production steps out of China in the short term, while longer term options are explored, etc.).  These plans should include continuing to participate in the administrative process (e.g., filing product exclusion petitions, submitting comments/providing testimony on the impact of List 3 – and any subsequent lists, etc.), as well as Congressional outreach.  We are assisting numerous clients with these efforts and would be happy to discuss the options with you further.  If that would be helpful, just let us know. 

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       

Section 301 – US Imposes Additional Duties

Dear Friends,

Earlier today, the White House issued a statement confirming that the United States will impose an additional 25% customs duty on $50 billion worth of imports from China.  The additional duty will be assessed on goods that “contain industrially significant technologies[,]” including those “related to China’s Made in China 2025 strategic plan to dominate the emerging high-technology industries[,]” according to the statement.  The statement goes on to say that the additional duty is “essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs.  In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China.”  Finally, the statement indicates that the United States will consider further additional duties if China retaliates (which it is expected to do).  A copy of the White House statement is attached.

Following the issuance of the White House statement, the U.S. Trade Representative published a notice on its website containing the list of products/tariff classifications that will be subject to the additional 25% duty.  The list is broken down into two pieces and focuses on “industrial” (not consumer) products.

The first piece contains 818 of the original 1,333 tariff classifications proposed in the list published on April 6, 2018.  These 818 tariff classifications represent approximately $34 billion worth of imports from China and the additional 25% duty will be assessed beginning on July 6, 2018.  A copy of this list is attached here: List 1.

The second piece contains 284 new tariff classifications identified by the interagency Section 301 Committee as benefitting from China’s industrial policies, including Made in China 2025.  These 284 tariff classifications represent approximately $16 billion worth of imports from China.  This list of tariff classifications will be subject to a new/separate public notice and comment process (including a hearing).  The details are expected to be published shortly.  A decision will be made whether to impose additional duties on products on this second list thereafter.  A copy of this list is attached: List 2.

The USTR notice also states that it will “soon provide an opportunity for the public to request exclusion of particular products from the additional duties subject to this action.”  This process will be detailed in a subsequent Federal Register notice.

We recommend that all clients review both lists published by the USTR.  We also recommend that clients keep their eye on the news.  It is widely expected that China will retaliate by imposing duties on U.S. exports to China.  In such a case, it is likely that the administration will seek to expand the second list of products subject to additional duties (the President had previously threatened to impose duties on an additional $100 billion worth of Chinese imports).  Finally, it is also important to stay tuned for the Federal Register notice that will be published with additional details, including on the product exclusions process.

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

Best regards,

Ted