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Tariff Increase for $200B of Chinese Imports Announced and Process for Importers to Request an Exemption Forthcoming

The Trump administration’s significant escalation of the trade dispute with China after months-long U.S.-China trade talks have faltered is a major news headline as the week concludes. The U.S. followed through on its warnings and increased tariffs on an estimated $200 billion of Chinese goods from 10 percent to 25 percent starting May 10th. At the same time, the U.S. announced importers will be able to apply for an exemption from these tariffs. Trade talks continued through today and ended without any deal. U.S. importers affected by the tariff increase will need to evaluate their options given this tariff increase and the uncertainty surrounding the U.S.-China trade dispute.

This latest tariff increase announced on May 9th in the Federal Register by the Office of the U.S. Trade Representative (USTR) is imposed pursuant to Section 301 of the Trade Act of 1974 after the USTR investigated and determined China’s policies and practices with respect to technology transfer and intellectual property were unreasonable and discriminated and burdened U.S. companies. Section 301 tariffs of 10 percent had already been levied on the estimated $200 billion of Chinese goods (List 3) as of September 24, 2018.  The increase in tariffs to 25 percent had been scheduled to go into effect on January 1, 2019, but then were postponed pending the outcome of U.S.-China trade talks until March 2nd, and then again indefinitely. See Summary Chart below of Section 301 tariffs imposed to date.  

President Trump warned about this List 3 tariff increase last weekend, saying it would be a response to the slow pace of talks and China’s attempts to renegotiate commitments it had made. The president also warned the USTR would begin preparing to impose tariffs on a fourth list containing the balance of U.S. imports from China with an estimated value over $300 billion.

The May 9th USTR announcement also confirmed the USTR would put in place a process for importers to apply for an exemption from these List 3 tariffs.  The USTR announced it would publish a separate notice describing this product exclusion process. Exclusion request processes were put in place for the previous rounds of Section 301 25 percent tariffs levied on $34 billion of Chinese goods (List 1) and $16 billion of Chinese goods (List 2). The deadlines for filing those requests passed months ago and the USTR continues to process those requests. While the USTR has made significant progress in processing the nearly 11,000 List 1 exclusion requests, which had a deadline in October 2018, with 5,312 or half denied and 1,442 or 13 percent granted, the nearly 3,000 List 2 exclusion requests, which had a deadline in December 2018, all remain in process, with none granted or denied to date. See Summary Chart below summarizing the status of exclusion requests for Lists 1 and 2. 

If the List 3 exclusion process remains the same as the process for List 1 and List 2, the application window would be open for three months, the exclusions would be retroactive to May 10th and they would be effective for one year after being granted. In addition, the criteria by which the requests would be evaluated would be:  (1) whether the product is available only from China; (2) whether the tariff on the product would cause severe economic harm to the requestor or other U.S. interests; and (3) whether the product is strategically important or related to Chinese industrial programs such as the ‘Made in China 2025’ program focused on high technology industries. The current backlog for List 1 and List 2 exclusion requests, coupled with the fact that List 3 encompasses four times the trade volume of Lists 1 and 2 combined, indicates importers who apply for exclusion requests will need to be patient in trying to mitigate the effects of the List 3 tariff increase via the exclusion process. 

Tariff List – Value of Imports from China

Number of Tariff Subheadings on List

Date tariff levied

Tariff

Exclusion Request Deadline

List 1 – $34B

818

July 6, 2018

25%

Oct. 9, 2018

List 2 – $16B

279

Aug. 23, 2018

25%

Dec. 18, 2018

List 3 – $200B

5,769*

Sept. 24, 2018

10%

Deadline not yet announced

Jan. 1, 2019 (postponed)

Mar. 2. 2019 (postponed)

May 10, 2019
 

25%

*Number of Tariff subheadings for List 3 reflects the USTR’s amendment and modification of List 3 as published in the Federal Register on September 28, 2018.

Status of Exclusion Requests for Lists 1 and 2

Tariff List

List 1 – $34B

List 2 – $16B

Date Tariff Levied

Jul. 6, 2018

Aug. 23, 2018

Date Exclusion Request Process Announced

Jul. 11, 2018

Sept. 18, 2018

Exclusion Request Deadline

Oct. 9, 2018

Dec. 18, 2018

Total Number of Exclusion Requests

10,837

2,919

Requests in Stage 1 (Public Comment Period)

0

1

Requests in Stage 2 (Initial Substantive Review)

1082 (10%)

1408 (48%)

Requests in Stage 3 (Administrability Review)

3001 (28%)

1510 (52%)

Requests in Stage 4 (Granted and publication in progress)

0

0

Granted

1442 (13%)

0

Denied

5312 (49%)

0

Note: Exclusion request data is compiled from the most recent USTR exclusion request index updates for List 1 and List 2 dated May 3, 2019.

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About this Author

Ivan Bilaniuk, Dinsmore Law Firm, Washington DC, Corporate and Litigation Law Attorney
Partner

Ivan’s practice focuses on helping clients realize their business objectives in their international contracting, international commercial disputes, international operations and exporting. He advises clients working in and with foreign markets in the Middle East, Europe, Africa and Asia on contracting, risk management, managing disputes and international compliance issues including anti-corruption due diligence, export controls and trade sanctions. 

He engages in international arbitration of commercial and international government contract...

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