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

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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 – 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

Section 301 Update II

Dear Friends, 

Further to the below, while there were some mixed signals sent yesterday, the Administration clarified today that the imposition of the section 301 duties is being suspended.  It is being reported that China and the United States have made enough progress in negotiations to warrant suspending the imposition of tariffs (as well as China’s retaliatory tariffs) for now.

While this is a positive development, it is also subject to change.  As a result, for now, we are recommending that companies continue to pursue exclusions just in case.

If you have any questions, please let us know.

Best regards,
Ted  


Dear Friends,

Further to the below, we wanted to provide a brief update on the Section 301 situation and request your assistance.

First, the update.  Roughly, 2,900 comments were submitted in response to the list of Chinese-origin articles the USTR proposed to subject to an additional 25% duty upon importation into the United States.  The comments were both opposed to, and in favor of, the imposition of additional duties (with the vast majority being opposed either broadly, or with regard to the inclusion of specific articles on the proposed list).  A 3-day hearing was also held this past week where approximately 125 individuals provided verbal comments either in opposition to, or in favor, of the additional duties.  Rebuttal comments are due this coming Tuesday, May 22nd.

Now the request — we assisted several clients prepare comments and testimony opposing the imposition of the additional duties.  We also assisted these clients in discussions with their respective Congressional delegations and were able to get commitments of support.   We advanced several different arguments during this process, but one, in particular, seemed to resonate especially well.  Based on that positive feedback, we wanted to follow-up with all of you to see if your companies are similarly-situated and, if so, if you would be willing to join our effort to gain a broad-based exemption.

In short, we requested that USTR categorically exempt from the proposed additional duties products manufactured in China by wholly foreign-owned enterprises (“WFOEs”).

As explained in greater detail in our previous updates (below), the USTR concluded that China used foreign ownership/joint venture requirements, compulsory technology transfers, the acquisition of U.S. companies and assets, etc. to obtain cutting edge U.S. technology and that those practices were “unreasonable or discriminatory and burden or restrict U.S. commerce”[.]  It was then determined that the “appropriate” remedy “to obtain the elimination” of those practices was to impose an additional 25% duty on the identified articles.  So, stated simply, the USTR’s goal is to identify articles on which the imposition of additional duties will force China to change its unfair policies.  

WFOEs, which are, by definition, owned entirely by non-Chinese entities, are not subject to the ownership restrictions (i.e., a WFOE does not have a joint venture partner).  WFOEs in most industries are also not subject to compulsory technology transfer through government licensing, for example.  As a result, the imposition of additional duties on articles produced in China by WFOEs will have no impact on Chinese government policy (i.e., there is no “forced” technology transfer when the manufacturer involved is a WFOE, therefore, assessing duties on articles produced by a WFOE does not make sense).

Accordingly, we requested that the USTR categorically exempt from any Section 301 duties articles produced in China by a WFOE.  We also pointed out that such an exemption would be easily administrable from a customs perspective.  A new ‘special program indicator’ could be created that, when used, meant that the importer was certifying that the articles being imported were produced by a WFOE (similar to how claims are made now under our more recent free trade agreements).  Such a certification would be subject to audit/verification by U.S. Customs and Border Protection.  The manufacturer identification (or MID) codes could also be used to help ensure that only articles produced (not just sold) by the WFOE were entered under the exemption.  

We believe that such a request has a meaningful chance of success for a couple of reasons.  The first is that exempting articles produced by WFOEs is consistent with the Section 301 determination (i.e., the goal is to get China to lift its restrictive ownership requirements so U.S./foreign companies can operate without local joint venture partners; WFOEs are already entirely foreign owned).  Second, this exemption request is a lot easier to justify than picking and choosing among the large number of compelling stories U.S. companies told in the context of their HTS-specific requests (i.e., assuming the USTR wants to provide some exemptions, our categorical request would be easier to grant than picking and choosing from among the numerous HTS-specific requests companies made).  Finally, it is also administrable.

As mentioned, our WFOE exemption has received positive feedback at a number of levels.  Accordingly, if you are opposed to the imposition of the Section 301 duties (either because you are on the list in this round, or you fear being on the list in the next potential round) and the articles you import are produced by a WFOE, please let us know.  Regardless of whether you filed comments already or not, we believe that you have the opportunity to engage with the Administration on this issue as part of our coalition.

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

Best regards,
Ted

Section 301 Update

Dear Friends,

Further to the below, we wanted to provide a brief update on the Section 301 situation and request your assistance.

First, the update.  Roughly, 2,900 comments were submitted in response to the list of Chinese-origin articles the USTR proposed to subject to an additional 25% duty upon importation into the United States.  The comments were both opposed to, and in favor of, the imposition of additional duties (with the vast majority being opposed either broadly, or with regard to the inclusion of specific articles on the proposed list).  A 3-day hearing was also held this past week where approximately 125 individuals provided verbal comments either in opposition to, or in favor, of the additional duties.  Rebuttal comments are due this coming Tuesday, May 22nd.

Now the request — we assisted several clients prepare comments and testimony opposing the imposition of the additional duties.  We also assisted these clients in discussions with their respective Congressional delegations and were able to get commitments of support.   We advanced several different arguments during this process, but one, in particular, seemed to resonate especially well.  Based on that positive feedback, we wanted to follow-up with all of you to see if your companies are similarly-situated and, if so, if you would be willing to join our effort to gain a broad-based exemption. 

In short, we requested that USTR categorically exempt from the proposed additional duties products manufactured in China by wholly foreign-owned enterprises (“WFOEs”).

As explained in greater detail in our previous updates (below), the USTR concluded that China used foreign ownership/joint venture requirements, compulsory technology transfers, the acquisition of U.S. companies and assets, etc. to obtain cutting edge U.S. technology and that those practices were “unreasonable or discriminatory and burden or restrict U.S. commerce”[.]  It was then determined that the “appropriate” remedy “to obtain the elimination” of those practices was to impose an additional 25% duty on the identified articles.  So, stated simply, the USTR’s goal is to identify articles on which the imposition of additional duties will force China to change its unfair policies.  

WFOEs, which are, by definition, owned entirely by non-Chinese entities, are not subject to the ownership restrictions (i.e., a WFOE does not have a joint venture partner).  WFOEs in most industries are also not subject to compulsory technology transfer through government licensing, for example.  As a result, the imposition of additional duties on articles produced in China by WFOEs will have no impact on Chinese government policy (i.e., there is no “forced” technology transfer when the manufacturer involved is a WFOE, therefore, assessing duties on articles produced by a WFOE does not make sense).

Accordingly, we requested that the USTR categorically exempt from any Section 301 duties articles produced in China by a WFOE.  We also pointed out that such an exemption would be easily administrable from a customs perspective.  A new ‘special program indicator’ could be created that, when used, meant that the importer was certifying that the articles being imported were produced by a WFOE (similar to how claims are made now under our more recent free trade agreements).  Such a certification would be subject to audit/verification by U.S. Customs and Border Protection.  The manufacturer identification (or MID) codes could also be used to help ensure that only articles produced (not just sold) by the WFOE were entered under the exemption.

We believe that such a request has a meaningful chance of success for a couple of reasons.  The first is that exempting articles produced by WFOEs is consistent with the Section 301 determination (i.e., the goal is to get China to lift its restrictive ownership requirements so U.S./foreign companies can operate without local joint venture partners; WFOEs are already entirely foreign owned).  Second, this exemption request is a lot easier to justify than picking and choosing among the large number of compelling stories U.S. companies told in the context of their HTS-specific requests (i.e., assuming the USTR wants to provide some exemptions, our categorical request would be easier to grant than picking and choosing from among the numerous HTS-specific requests companies made).  Finally, it is also administrable.

As mentioned, our WFOE exemption has received positive feedback at a number of levels.  Accordingly, if you are opposed to the imposition of the Section 301 duties (either because you are on the list in this round, or you fear being on the list in the next potential round) and the articles you import are produced by a WFOE, please let us know.  Regardless of whether you filed comments already or not, we believe that you have the opportunity to engage with the Administration on this issue as part of our coalition.

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

Best regards,
Ted

China to Impose Trade Measures on USA as a Result of Section 301 Investigation

Dear Friends,

As expected, China has announced that it intends to impose 25% additional duties on $50 billion worth of U.S. imports in response to the threat of the U.S. imposing 25% duties on Chinese imports as a result of the section 301 investigation. 

The list includes 106 categories of U.S. products, from agricultural products (e.g., soybeans, wheat, corn, beef, etc.) to chemicals to aircraft and autos.  These duties are in addition to the additional duties China threatened to impose on U.S. products last week in response to the additional duties the U.S. has imposed on steel and aluminum under section 232.

While the trade war is escalating (and all companies should be planning accordingly), the ‘goods news’ is that this latest of round of duties do not go into effect immediately.  Instead, there will be a process in the United States that will take time, and it appears that China may not impose its duties until after the U.S. duties go into effect.  This gives the two governments a chance to reach a negotiated settlement of the underlying concerns.  That said, until such a settlement is reached (which is not likely in the short term), companies should be taking appropriate action to prepare.

We hope this is helpful.  If you have any questions about how these developments impact your business (here or in China), please let us know.

Best regards,

Ted

 

US to Impose Trade Measures on China as a Result of Section 301 Investigation — List of Products Impacted

Dear Friends,

Further to the below, the Office of the U.S. Trade Representative published the list of products proposed to be hit with an additional 25% duty upon importation from China, as a result of the determination that certain acts, policies and practices by China related to foreign ownership/joint venture requirements, forced technology transfers, the acquisition of U.S. companies and assets to obtain cutting edge technology, etc. are “unreasonable or discriminatory and burden or restrict U.S. commerce” and President Trump’s March 22 memo (discussed below).  A copy of USTR’s notice is attached.

According to the notice, the list was compiled by identifying the products that benefitted from China’s unfair/discriminatory policies, removing the products whose inclusion would cause disruptions to the U.S. economy and ranking the remainder by likely impact to U.S. consumers (with the list being drawn from those products with the lowest consumer impact).  The products to be assessed the additional 25% duty are identified by 8-digit tariff classification.  The list includes a variety of products and industries, including chemicals (many of which appear to be active pharmaceutical ingredients), drugs, iron, steel, aluminum, turbines, engines/motors, aerospace materials, pumps, compressors, various types of production machinery, scales, construction equipment, paper making machinery, various types of machine tools, hand tools, certain computer equipment & accessories, magnets, batteries, etc.  Particularly hard hit are articles classified in Chapters 84, 85 and 90.  At this point, the list of products is not final.  The USTR is accepting comments on the proposed list of products, the appropriate duty rate, etc. until May 11, 2018 (with rebuttal comments being due by May 22, 2018).  The USTR will also hold a public hearing on May 15, 2018.   

All companies that import from China should review the list of products proposed to be hit with the additional duties.  If you are importing one or more articles included on this list, then you should consider submitting comments to the USTR and/or appearing at the hearing, as well as pursuing other alternatives.  We would be happy to discuss these options with you further, if helpful.

Also, as it just recently did with regard to the steel and aluminum section 232 duties, we expect that China will respond to this development by threatening to impose additional duties on U.S. products imported into China.

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

Best regards,
Ted