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 Jon.Cowley@bakermckenzie.com and Frank Pan (Shanghai) at Frank.Pan@bakermckenzie.com.

China Retaliatory Tariff Lists

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

http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201905/P020190513719203602248.pdf

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

http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201905/P020190513719204287788.pdf

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

http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201905/P020190513719204715521.pdf

US products to remain subject to 5% tariff:

http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201905/P020190513719205123756.pdf

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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,
Ted

Section 301 – China Responds

Dear Friends,

As expected, China announced yesterday that it will implement retaliatory tariffs of either 10% or 5% on $60 billion worth of U.S. products imported into China beginning September 24, 2018.  China’s action is in response to the U.S. announcement of its intention to implement the Section 301 List 3 tariffs.

The latest round of Chinese retaliatory tariffs will apply to products of U.S. origin that fall on four lists that China published on August 3, 2018.  China organized these four lists according to proposed tariff rates of 25%, 20%, 10% and 5%.  Based on its latest announcement, while the products have not changed, the tariff rates have.  China will impose a 10% retaliatory tariff on U.S. products on the 25% and 20% lists, and it will impose a 5% tariff on products on the latter two lists.  Links to these four lists are provided for your reference below.  While the lists are in Chinese, the products can be identified by their tariff numbers. 

U.S. Products to be Subject to 10% Tariff:

U.S. Products to be Subject to 5% Tariff:

Unlike the United States, China does not offer a formal process for importers to request product exclusions from the tariffs, and affected companies must explore other options to mitigate the impact of the Chinese retaliatory tariffs on their businesses, such as advocacy, changes to their sourcing and manufacturing strategies, and other duty planning methods.

Our trade team in China routinely assists companies evaluate their options and implement mitigation strategies to address the tariffs.  If you have questions, or if you would like to explore possible options, you can either contact us or reach out to Jon Cowley (jon.cowley@bakermckenzie.com) or Frank Pan (frank.pan@bakermckenzie.com) directly.  

We hope this update is helpful.

Best regards,
Ted

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

Further to the below, the USTR has now released the finalized List 3.  The USTR’s website provides as follows:

“The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018.  Changes to the proposed list were made after USTR and the interagency Section 301 Committee sought and received comments over a six-week period and testimony during a six-day public hearing in August.  USTR engaged in a thorough process to rigorously examine the comments and testimony and, as a result, determined to fully or partially remove 297 tariff lines from the original proposed list.  Included among the products removed from the proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.”

A copy of the complete list is attached here for your reference: Tariff List_09.17.18  It will also be published in the Federal Register later this week. 

Best regards,

Ted


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