Section 301 — All Quiet on the Eastern Front

Just a brief update on the below — since President Trump announced on June 29th that the U.S. and China had agreed to restart negotiations to resolve their trade dispute, it appears that remarkably little progress has been made.  Instead, it appears that both sides may be digging in for a protracted trade war.

 As part of his announcement two weeks ago, President Trump said that China would start buying a “tremendous amount of food and agricultural product” from the United States.  So far, however, those purchases have not materialized.  President Trump tweeted this past Thursday that “China is letting us down in that they have not been buying the agricultural products from our great Farmers that they said they would. Hopefully they will start soon!”

 Also, while the two sides did have a high level phone call this past week, no plans were announced following that call for the resumption of face-to-face negotiations.  It was also announced by the White House that further negotiations would be led on the U.S. side by the U.S. Trade Representative, rather than by the USTR and the Treasury Secretary, as has been done in the past.  Given that the USTR is generally viewed as more hawkish than the Secretary of the Treasury on the trade war with China, this may be a sign that the U.S. position is hardening.  It is also worth noting that, despite the president’s announcement two weeks ago, neither the White House, nor the USTR, has issued an official statement suspending List 4 (which means it could come back at any time).

 While it is possible that the two sides will start to ramp up negotiations in the coming weeks, that does not seem likely.  Instead, it increasingly seems like both sides are content to live with the status quo.  As a result, companies should continue to pursue their Section 301 mitigation strategies (e.g., revamping their supply chains, accelerating imports of List 4 articles, pursuing List 3 product exclusion requests, etc.), as the additional duties may be around for a while longer.

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


Section 301 — List 3 Product Exclusion Process

Further to our earlier post Section 301 — Increase in US Duties (Further Update), the U.S. Trade Representative (“USTR”) stated that it would establish a product exclusion request process in the notice that increased the additional duties on List 3 articles from 10% to 25%.  Last week, a notice was published in the Federal Register requesting public comment on the product exclusion request form that the USTR proposed be used for this process.  There are a couple of things interesting about this notice. 

 The first is that it says that USTR anticipates that the product exclusion request process “will open on or around June 30, 2019“. 

 The second is that the form proposed to be used for this round of product exclusions differs in several important respects from the form used in earlier rounds (i.e., the product exclusion petitions submitted for List 1 and List 2 articles).   In reviewing the proposed List 3 Exclusion Request Form, it requires more detailed information than what was required under List 1 and List 2.  Not only did the number of questions increase from 11 to 17, but much more detailed information is required including information that relates to product details and economic data on the impact of the increased duty to the requestor.  It appears that the USTR will be digging more into the nuts and bolts of how products are classified as well as closely examining the economic impact.  As a result, it will be important to submit clear, complete and detailed information in order to ensure that full consideration is given to your request.  Attached is a copy of the proposed List 3 Exclusion Request Form.  List 3 (Proposed Exclusion Request Form)

 In short, all companies impacted by List 3 should be gathering the information needed to submit a product exclusion now, so you are ready to submit the request as soon as the process opens in late June/early July.  We expect that thousands (and thousands) of requests will be filed and, while the approvals will presumably still be retroactive to the date the duties went into effect (although an interesting question is raised as to whether it will be retroactive to when the 10% duty rate went into effect or when the 25% duty rate went into effect), it is better to be at the front of the line, than the back. 

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


China Retaliatory Tariffs

As expected, China has announced an increase in its retaliatory tariffs on $60 billion in US-origin products. The move is in response to the US announcement regarding the increase of the tariff rate applicable to $200 billion in Chinese-origin products that took effect on May 10, 2019. The products subject to the China’s retaliatory measures fall on four lists, originally published on August 3, 2018, that were separated according to proposed tariff rates of 25%, 20%, 10% and 5% (see lists below). Those products have been subject to reduced tariff rates of 10% and 5%, but the originally proposed tariff rates will take effect with respect to US-origin product entered into China on or after June 1, 2019. Tariff exclusions for certain auto parts on the 5% list will, for the time being, continue to apply in accordance with announcements published in January and March of this year.

As a significant development, China has also unveiled a formal product exclusion process whereby Chinese importers, Chinese designated parties of US manufacturers, and relevant chambers of commerce and industry organizations may file requests with the China Ministry of Finance to exclude products from the retaliatory tariffs. In deciding whether to grant a product exclusion request, the Ministry of Finance will consider factors such as: (i) the availability of substitute products; (ii) the economic hardship caused on the applicant; (iii) the adverse impact of the tariffs on related industries; and (iv) the related societal impact of the tariffs. An excluded product will be exempt from the retaliatory tariffs for one year from the effective date of the exclusion, and the previously levied retaliatory tariffs may be refunded if the exclusion applies to all the products under a tariff line or a refund is otherwise considered feasible by customs.

If you would like to explore the new exclusion process, or have any questions about China’s retaliatory tariffs, please let us know or reach out to Jon Cowley (Hong Kong) at and Frank Pan (Shanghai) at

China Retaliatory Tariff Lists

US products to be subject to 25% tariff, increased from the current 10% tariff:

US products to be subject to 20% tariff, increased from the current 10% tariff:

US products to be subject to 10% tariff, increased from the current 5% tariff:

US products to remain subject to 5% tariff:

Section 301 — List 4 (Everything Else)

The U.S. Trade Representative’s Office made available this afternoon an advance copy of the notice that will be published in the Federal Register later this week beginning the process of imposing additional duties of up to 25% on all remaining imports from China (i.e., List 4).  List4  According to the notice, “[i]n light of China’s failure to meaningfully address the acts, policies, and practices that are subject to this investigation and its response to the current action being taken in this investigation, and at the direction of the President, the Trade Representative proposes to modify the action being taken in this investigation.”  The modification being proposed is imposing additional duties of up to 25% on “essentially all [Chinese-origin] products not currently covered” by one of the previous lists.  This new “List 4” covers approximately $300 billion worth of imports from China and includes, for example, subheading 8517.62.0090, HTS which was created in an earlier phase of the investigation and excluded from duties at that time.  Articles such as pharmaceuticals, pharmaceutical inputs, select medical goods, rate earth materials and critical minerals are excluded; as are articles covered by previously granted product exclusions.

 Before taking such action, the USTR is soliciting public comments like was done in previous phases of this investigation.  There will be an opportunity to participate in a public hearing that will begin on June, 17, 2019, as well as to submit written comments.  The notice asks that interested parties address:

(1) the tariff subheadings to be subject to increased duties (whether the ones included in the Annex to the notice should be retained or removed, or others not on that list added);

(2) what the appropriate additional duty rate should be (i.e., 25% or something less); and

(3) whether the entire ~$300 billion in imports should be targeted, or something less.

 For (1), the USTR asks that commenters specifically address “whether imposing increased duties on a particular product would be practicable or effective to obtain the elimination of China’s acts, policies, and practices, and whether imposing additional duties on a particular product would cause disproportionate economic harm to U.S. interests, including small- or medium-size businesses and consumers.”

 In terms of timing, we expect that the hearing will last at least one week.  Rebuttal comments are due 7 days after the close of the hearing.  Based on this timing, the Administration would not be in a position to impose the additional duties until after President Trump and President Xi have the opportunity to meet at the G20 summit in Japan (June 28-29th).  That means there is a (slim) chance that, if negotiations continue in the meantime, that a final resolution can be reached at that meeting and these additional duties will never be imposed.  Obviously, however, no one can bank on that happening.  As a result, all companies that are impacted by List 4 should participate in this process.  There seems to be genuine misunderstandings within the Administration over issues such as ‘who pays the additional duty’ and how quickly U.S. companies can modify their supply chains.  Participating in the process offers the chance to clear this up.  In addition, we believe that participation in the public hearing can help (somewhat) with the product exclusion process (which, if the additional duties are set at 25%, should be created at or around the same time).  While we do not expect that many articles will actually be excluded based on public participation given the current state of US-China trade relations, we nevertheless believe it is important for all companies to participate in one form or another.

 To paraphrase Winston Churchill, this is not the beginning of the end, but is hopefully getting us closer to the end of the beginning.  If you have any questions, or if you would like to discuss participating in the process, please let us know.


Section 301 — Increase in US Duties (Further Update)

Further to our earlier post today, the U.S. Trade Representative’s Office released late last night another notice that attempts to address the ‘shipments on the water’ issue (i.e., shipments exported from China before 12:01 am ET this morning, but entered for consumption in the United States on or after 12:01 am ET this morning). 

 The notice, which will be published in the Federal Register shortly, provides that such shipments will be subject to the 10% duty rate so long as they are entered for consumption, or withdrawn from warehouse for consumption, prior to June 1, 2019 (i.e., in the next 3 weeks).  The notice creates a new HTS subheading for such shipments.  A copy of the notice is attached for your reference.  Implementing_Modification_to_Section_301_Action

 Assuming that the new HTS subheading is available in the system, this obviates the need for importers of these shipments to pay the 25% duty and claim a refund, or delay the filing of the entry summary, as suggested in CBP’s CSMS message from yesterday.

 On a related note, the negotiations are continuing here in Washington, DC today.  We are expecting further updates (or at least tweets) over the weekend.  Also, in response to the increase in duty rate from 10% to 25%, China announced that it was ready to take “necessary countermeasures” but did not specify what those countermeasures will be.  Stay tuned.  Interesting times.

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

Section 301 — Increase in US Duties (Update)

Further to our update on May 8, 2019, U.S. Customs and Border Protection (“CBP”) issued a Cargo Systems Messaging Service (“CSMS”) message today that addresses how merchandise exported from China prior to May 10th, but entered for consumption in the United States on May 10th or thereafter, will be treated.  A copy of CSMS #19-000236 is attached for your reference.  csms-cbp

 The good news is that CBP confirmed that such shipments are subject to the 10% duty rate (not the 25% duty rate).  The bad news is that it will take CBP awhile to work out the programming to make that happen.  As a result, importers will have to either (i) pay the 25% duty rate as of 12:01 am ET tomorrow and then file a Post-Summary Correction once the programming is completed to claim a refund, or (ii) wait to file the entry until the end of the 10-day period following arrival that is permitted under the regulations (and hope the programming is done in that window).  Here is the relevant excerpt from the CSMS message:

 For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, report the following HTS numbers and duty rates:

 HTS                                                                  Duty Rate
9903.88.03 and 9903.88.04                        25 percent 

 For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States before May 10, 2019, the 10 percent duty rate will still apply.  CBP is working with USTR on additional guidance on the entry filing requirements for these imports.

 In the meantime, for goods entered on or after May 10, 2019, importers can pay the 25 percent duty and file a Post Summary Correction when filing instructions are available for the 10 percent duty.  Alternatively, importers can delay filing their entry summary within the standard ten-day entry summary filing period until additional filing instructions are available for the 10 percent duty.

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

Section 301 — Standstill Agreement Reached

Dear Friends,

Further to the below, the United States and China have agreed to adopt a standstill agreement in the on-going trade war to provide time for the two side to negotiate an overall resolution.  According to the White House press release:

On Trade, President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time. China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately.

President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.

A copy of the press release can be found here.

This will certainly come as good news to many companies (in particular, those importing articles included on List 3).  The increase in the duty rate applicable to articles included on List 3 from 10% to 25% has been delayed from January 1, 2019 to March 1, 2019.  It is also reasonable to assume that the U.S. Trade Representative will not begin the process for imposing duties on the remaining $267 billion worth of imports until after March 1st, at the earliest. 

This announcement also suggests that President Trump views the dispute with China to be a ‘little picture’ trade dispute, rather than a ‘big picture’ geo-political battle with a rising power.  That is good news for companies with significant investment in U.S.-China trade, as the former is at least susceptible to a negotiated settlement; whereas the latter is almost certainly not.  That said, a great deal of work remains to be done if the two sides are to reach an agreement within 90 days on “structural changes with respect to [China’s policies regarding] forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.” 

While this may be a positive development, the outcome is still far from certain.  As a result, companies should continue to be looking at the various mitigation strategies.  If you have any questions about these strategies, or if you would otherwise like to discuss the situation further, please let us know.

Best regards,