How to Avoid China Tariffs: Make an Exclusion Request and Fast

The seemingly endless U.S.-China trade war keeps slogging along. The Office of the U.S. Trade Representative (USTR) has already imposed 25% tariffs on $250 billion of Chinese imports on three previous lists (List 1 = $34 billion starting from July 2018, List 2 = $16 billion from August 2018, List 3 = $200 billion from September 2018) and in August 2019, President Trump ordered all remaining Chinese imports (about $300 billion) also be hit with tariffs.  On September 1, 2019, 15% tariffs were imposed on the first part of List 4A products and additional tariffs have been proposed for the remaining List 4B products effective December 15, 2019, but these tariffs may be delayed or cancelled depending on negotiations between the U.S. and China.

The products on the first two lists consisted primarily of products that were inputs, parts, and components used to manufacture finished products. The products on the third and fourth lists covered primarily finished products (e.g., clothing, household products, car seats/ baby products, sporting equipment, electronics).

The latest development in the Section 301 China tariff disputes is that USTR has officially announced the opening of an exclusion request process for those Chinese products that had a tariff rate of 15% imposed effective from September 1, 2019 (i.e., the List 4A tariffs). Your opportunity to submit List 4 product exclusion requests began on October 31, 2019 and will remain open through January 31, 2020. All exclusion requests must be submitted through USTR’s web portal. Any granted exclusions will be valid for one year from the date the exclusion grant is published in the Federal Register. The List 4A product exclusion request is similar to that used for the prior three lists of tariffed Chinese products.

Exclusion requests are to cover only a single product, and must include the following information:

• The 10 digit subheading of the Harmonized Tariff Schedule (HTSUS) applicable to the particular product requested for exclusion.
• Product name and detailed description, including the physical characteristics (e.g., dimensions, material composition, or other characteristics) of the product that distinguish it from other products within the covered 8-digit subheading.
  • USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
• The product function, application, and principal use.
  • Requesters may submit attachments with publicly available information that help distinguish the products (e.g., CBP rulings, photos and specification sheets, and previous import documentation).
• Whether the product is subject to an antidumping or countervailing duty order.

USTR also is asking the requesting parties to provide the following more detailed sales and financial information:

• Identify their relationship to the product (e.g., importer, U.S. producer, purchaser, industry association, other).
• The company’s gross revenue for 2018 and first half 2019.
• Report the quantity and value of the company’s purchases of the product for 2017, 2018 and first half 2019, not only for the Chinese imports, but also from domestic and third-country suppliers.
• For imports sold as final products, the percentage of the company’s 2018 total US gross sales that were accounted for by the Chinese products.
• For imports used in the production of final products, companies will need to report the percentage of the total cost of the finished product that is accounted for by the imported Chinese input, and the percentage of the company’s 2018 total US gross sales that were accounted for by the final products.
• Is your company a “small business” as defined by the Small Business Administration.

Exclusion requests also 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.
  • Requestors are asked to discuss any attempts to source the product from the United States or 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 that they consider relevant to an evaluation of the request.

These last factors appear to be key considerations to whether an exclusion will be granted or not.  Products that are available from U.S. or third-country suppliers are more likely to be denied than products that can only be sourced from China.  Successful exclusion requests usually have a good story describing the harm to American economic or other interests that would be caused by the tariffs.

USTR has completed its review of exclusion requests for all of List 1 ($34 billion) and most of List 2 ($16 billion). The Wall Street Journal reported in early October that about 61 percent of the exclusion requests for these two lists had been denied, 31 percent had been granted, and the rest were still pending. In other words, requests to exclude products from tariffs have about a one in three chance of succeeding.

The deadline to submit exclusion requests for List 3 just closed September 30, 2019. Although USTR has only just started its review of List 3 exclusion requests, it has already granted a small number of exclusion requests for List 3 products.

If you want to avoid the next round of tariffs against your China products you need by January 30, 2020.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.