Section 301 — Notice Delaying Duty Increase on List 3 from 10% to 25%

Dear Friends,

Further to the below, included here is an advance copy of a notice that will be published in the Federal Register next week officially delaying the increase in Section 301 duties on articles included on List 3 from 10% to 25%.  Based on the agreement reached by President Trump and President Xi last month (see previous post), the duty rate will now increase on such articles on March 2, 2019 (rather than on January 1, 2019) unless an overall agreement is reached, or there is a further delay.

Best regards,
Ted

 

 

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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

CBP’s Section 301 Enforcement Push

Dear Friends,

As companies consider mitigation strategies to offset the impact of the Section 301 duties, we wanted to share an important update regarding enforcement priorities at the border.  Further to recent reports, CBP’s Office of Regulatory Audit has confirmed that it will be ramping up enforcement of “various types” of imported electronics (i.e., products classified in chapters 84 and 85 of the Harmonized Tariff Schedule of the United States).  In connection with these efforts, Regulatory Audit is adding staff, including managers and auditors.  For instance, CBP is adding 60 new auditors across Regulatory Audit’s 10 field offices.  Our contacts in Regulatory Audit have informed us that, as part of this effort, a first “wave” of CF-28s (Requests for Information) since the imposition of the Section 301 duties will be issued in 2-4 weeks.  

There are several reasons for CBP to focus its enforcement on imported electronics.  Most importantly, billions of dollars in revenue are at stake for the U.S. government, and CBP is intent on collecting that revenue (the Trump administration expects CBP to collect “record-setting revenues”).  Also, given that electronics have generally been entitled to be entered duty free (or subject to very low duty rates), CBP recognizes that importers are under pressure to reduce the Section 301 impact and, therefore, may (intentionally or unintentionally) act in a manner contrary to U.S. customs laws and regulations.  Last, targeting electronics is justifiable given the conclusions of the Section 301 investigation, namely that the Government of China engages in intellectual property theft and forced technology transfers to support its industrial advancement goals.  Stated differently, targeting electronics aligns with the legal basis for the Section 301 duties and the administration’s messaging around China’s unfair policies. 

While CBP has confirmed that an enforcement push will be made with respect to electronics, we understand that CBP is increasing enforcement activities on all fronts.  As such, companies pursuing Section 301 mitigation strategies should tread cautiously.  Re-classifying products, changing the country of origin, and/or decreasing the customs valuation (for example, by declaring the “first sale” price in a multi-tiered transaction, rather than the price the U.S. importer pays), is likely to draw scrutiny from CBP.  As such, it is important that companies be able to demonstrate that they exercised reasonable care in carrying out these activities (not exercising reasonable care can lead to steep penalties, in addition to owing unpaid duties).  To demonstrate that a company is exercising reasonable care, we recommend having on file contemporaneously drafted documentation that substantiates the legal basis for any changes (e.g., documentation explaining that, based on changes to the supply chain, the product is no longer Chinese origin, since it is now last substantially transformed origin somewhere else).  Further, any company that receives a CF-28 or CF-29 (Notice of Action) should escalate the matter to the company’s legal department before responding and/or engage outside trade counsel, if appropriate. 

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

Best regards,

Ted

Section 301 – Upping the Ante

Dear Friends,

The in-person meeting between President Trump and President Xi of China scheduled for the side-lines of the G20 Summit in Buenos Aires on November 20, 2018 is taking on heightened significance. 

In a television interview yesterday, President Trump said that he has tariffs on the remaining $267 billion worth of Chinese imports into the United States “ready to go” if the two sides cannot reach a deal.  He also said that, while he is confident that a deal could be made, he believes that “China is not ready”. 

While anything can happen, it is wise to take such political rhetoric seriously (but not literally).  Accordingly, all companies should prepare for the United States initiating the process for List 4 shortly after the November 20th meeting.  Based on the timeline followed in the previous rounds, the List 4 additional duties could go into effect by late January/early February 2019.

We hope 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 – Latest Update

Dear Friends,

Just a quick update on Section 301, and the process surrounding List 3, in particular. 

As you know, the U.S. Trade Representative is considering whether to impose an additional 25% duty on a list of tariff provisions that represent $200 billion worth of imports from China (this is ‘List 3’).  The Section 301 Interagency Committee will be holding a public hearing on the scope of List 3 beginning this week.  The USTR will hear testimony from approximately 350 interested parties over 6 days.  The hearing schedule and the list of parties testifying are attached here for your reference.

In addition, we wanted to let you know that, as of last Thursday, the USTR had received 386 product exclusion requests under List 1.  The oldest request was filed on July 16, 2018.  So far, none of the 386 product exclusion requests have been acted upon.  A list of the exclusion requests is attached for your reference.  The USTR is expected to publish a notice in the Federal Register opening the exclusion process for List 2 shortly.  A similar notice (presumably) will be published for List 3 shortly after that list is finalized (expected in mid-to-late September).  Remember, it is better to file your exclusion request as early in the process as possible (it is going to be a long line!).

Finally, there will be a meeting in Washington between Chinese and U.S. officials later this week. This meeting is billed as being between “mid-level” officials on both sides (so, it is likely a meeting about whether it makes sense to keep meeting).  While this is a positive sign, it does not mean that the end is near (by any stretch).  For one reason, the U.S. delegation is being lead by a Treasury Department official.  The trade agenda (at least when it comes to China) is being driven by the White House, Commerce Department and USTR (not by Treasury).  As a result, no major breakthroughs are expected at this meeting.  That said, it is also being reported that there could be a possible meeting between President Trump and President Xi at one of the international meetings both will be attending in November.  While a resolution may not seem likely, President Trump has demonstrated a certain penchant for ‘declaring victory’ after in-person meetings with world leaders (and leaving the details to be worked out by others later – e.g., the Singapore summit with North Korea, the White House meeting with EU Commission President Juncker last month).  Nothing would surprise me at this point.

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

Best regards,
Ted

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

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