China Business

How to Get Out from Under the U.S.-China Trade War

International Trade Lawyers

President Trump has targeted about $250 billion of products imported from China. These China tariffs have been rolled out in three waves:

  • (List 1) – has a 25% tariff that covers about $34 billion of Chinese products listed in 818 tariff subheadings. The 25% tariff for List 1 went into effect on July 6, 2018.
  • (List 2) – has a proposed 25% tariff that would cover about $16 billion listed in 284 tariff subheadings. The 25% tariff for List 2 has not yet gone into effect.
  • (List 3) – has a proposed 10% tariff that would cover $200 billion listed in 6,031 tariff subheadings.

The products targeted in List 1 and List 2 were primarily intermediate inputs and capital equipment (semiconductors, machinery, equipment parts, industrial chemicals). These products were selected by the U.S. Trade Representative (USTR) because they were more patent-intensive and thus related to China’s unfair practices on intellectual property and technology transfer. The products in List 3 were selected to respond to China’s immediate retaliation to impose $50 billion tariffs on U.S. goods imported into China.  List 3 covers a much broader range of products, including many consumer goods that were specifically not chosen for List 1 and 2.

If your supply chain includes imported articles from China subject to the extra 25% or 10% tariffs, there is still hope for a product-specific exclusion. The process of how the List 1 China tariffs were rolled out shows that U.S companies have at least two chances to submit comments to try to get certain products off the list.

On April 6, 2018, USTR originally proposed a List 1 of products covered by 1,333 tariff subheadings and invited comments on the proposed tariff subheadings and whether they contained products that should or should not be hit with 25% tariffs. After receiving approximately 3,200 comments and holding three days of hearings in May 2018, USTR on June 20, 2018 issued a revised List 1 of products covered by 818 tariff subheadings. The total value of the products on the original and revised List 1 was still around $34 billion, but USTR noted that it had removed some tariff subheadings, and added others based on the comments and testimony provided on the List 1 products.

Although the 25% tariff went into effect for the List 1 products on July 6, 2018, USTR on July 11, 2018, published a notice explaining the procedures and criteria for requests for product-specific exclusions for the List 1 products. USTR’s first round of comments were focused more on the tariff subheadings proposed to be subject to the tariffs, while this second round of comments gives parties a second chance to explain why their specific products should be excluded from the tariffs. The List 1 product exclusion requests are due by October 9, 2018.

List 1 Exclusion Process
USTR will now consider excluding a particular product within one of the included 818 subheadings – but not the tariff subheading as a whole – from the additional 25% tariff. The details for exclusion requests are here List 1 Exclusion Request Procedures

Exclusion Request Conditions

USTR will accept requests from all interested persons, including trade associations. Exclusion requests must identify a specific product with supporting data and rationale for an exclusion. And interested persons seeking an exclusion for multiple products must submit a separate request for each product.

Factors for USTR Consideration in Granting Exclusion Requests

In granting an exclusion request on a product-by-product basis, USTR will consider whether the product is available from a source outside of China, whether the additional tariffs would cause severe economic harm to the requestor or other U.S. interests, and whether the particular product is strategically important or related to Chinese industrial programs including “Made in China 2025.”  USTR unlikely to grant any exclusion requests that undermine the objective of the Section 301 investigation.
USTR will consider each request on a product-by-product basis.  Exclusions will be granted on a product basis, meaning any individual exclusion will apply to all imports of that particular product (not just to products imported by the requestor).

Exclusion Request Schedule

The USTR notice provides:

  • Product exclusion requests are to be filed by no later than October 9, 2018.
  • Following public posting of the filed request (in docket number USTR–2018–0025-0001 on the public will have 14 days to file responses to the product exclusion.
  • At the close of the 14-day response period, any replies responses are due within 7-days.
  • Any exclusions granted will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018.

Making Exclusion Requests – Requirements

The USTR notice provides that each request must include material set out in the bullet-point summaries listed below.  And USTR has issued Exclusion Request Guidelines for facilitating submissions.

  • Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading.  USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or trade names.  USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  • The 10 digit subheading of the HTSUS applicable to the particular product requested for exclusion.
  • Requesters also may submit information on the ability of U.S. Customs and Border Protection to administer the exclusion.
  • Requesters must provide the annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years.  (Trade associations should provide such information based on members’ data.)  If precise annual quantity and value information are not available, USTR will accept an estimate with justification.

Exclusion requests should address the following factors:

  • Whether the particular product is available only from China.  In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
  • Whether imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.
  • Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
  • Requesters may also provide any other information or data they consider relevant to an evaluation of the request.

All exclusion requests must be accompanied by a certification that the information submitted is complete and correct.  USTR strongly encourages interested persons to submit exclusion requests on its prepared form (request form) to simplify exclusion request filings.

As the China tariffs are still in the process of being rolled out, parties still have a chance to request that certain products be excluded from the proposed tariff list. For List 1 products, product specific exclusion requests can be filed up to October 9, 2018.  For List 2 and 3 products, initial comments on the proposed tariff subheadings can be filed by July 23, 2018 (List 2) and August 17, 2018 (List 3), and likely will get another chance to make product-specific exclusion requests if and when the tariffs for these two lists go effective.

Products that are not produced or cannot be adequately supplied by domestic producers would have a better chance at exclusion.  Domestic producers have a chance to oppose any exclusion requests and likely would challenge any exclusion request for Chinese products that are competing with their products.

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