On September 17, 2018, as part of the United States' continuing response to China's theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs. In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent. Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.
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. The Office of USTR believes they 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.
If you filed comments or gave testimony in an attempt to get something removed, remember, it was not a waste of your time. Your comments appear to have been largely ignored by the President, who, it appears, is taking this abrupt action in an attempt to accelerate talks with the Chinese toward a negotiated agreement. Your comments and testimony may well influence the U.S. position in the talks.
Agathon Associates is aware that there is considerable confusion and concern over this action.
Q and A.
Q1. What is on the final list?
A1. The official list is available HERE
Q2. What lines were removed?
A2. USTR has made the following general statement:"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."
Agathon Associates has prepared an UNOFFICAL list in spread sheet form.
Q3. An article I import from China is on the list? What can I do?
A3. Unless you can quickly change your sourcing, or defer imports, you should prepare to start paying an additional 10% duty starting on September 24, 2018. It will likely be temporary, but no one knows how long it will be in effect or whether it will continue with a 25% rate starting January 1, 2019.
Q4. Is there any chance it may not go into effect?
A4. Yes, it is widely understood that the President is taking actions against China to bring China to the negotiation table and get a better trading arrangement for the U.S. It is possible that he could accomplish that before the tariffs go into effect. It is also possible that a deal could be made within a few weeks, limiting the duration of the harm. It is also possible that a court may delay it (see question 5, below).
Q5. Is this even legal? All these list suddenly released looks like he's making it up as he goes along, rather than following regulatory procedures.
A5. Good point.
The Consumer Technology Association ("CTA") has filed comments challenging the legality of List 3 (see the history below if you want to clarify the three lists). CTA contends that the administration did not have the authority to impose new tariffs -- beyond the two lists of tariffs already in effect -- without initiating a new investigation."Section 301 does not authorize the additional $200 billion in List 3 tariffs, for at least two reasons," the submission states. "First, the announcement of the List 3 tariffs came well outside the 30-day limit imposed by Section 305 of the Trade Act. Second, the List 3 tariffs were based on impermissible reasons post-dating the Section 301 investigation --namely, 'China's response to the $50 billion action announced in the investigation and its refusal to change its acts, policies, and practices,' -- rather than on the original Section 301 investigatory findings, as the statute requires." CTA further argues that Section 307 of the 1974 trade law does not permit the administration to modify remedies indefinitely. "It does not authorize USTR to impose brand new penalties that more than quadruple those imposed following the original investigation," the submission says. "Nor does it offer the Administration a blank check to increase tariffs at any time based on events post-dating the initial Section 301 investigation. Such unfettered discretion is inconsistent with the fact-based determination required by Section 301."
Another consideration is the timing. Just 12 days after the close of the September 6, 2018, comment period, and just two days after the transcript of the hearing was made available on regulations.com, USTR announced the final list. There is no way that government bureaucrats had time to fully analyze over 6,000 comments and testimony from over 300 witness in such a short time. One can argue that once you acknowledge that the proposed action requires consideration of public comments, you cannot then move ahead without even reading those comments.
Would a legal challenged based on the assertions above be successful? It may not be necessary to prevail, merely finding one judge to stay the action pending a full court hearing would, at least for a considerable time, stop the tariffs.
Q6. What about filing for an exclusion by the October 9, 2018, deadline?
A6. As of now there is no provision for filling for an exclusion from List 3 tariffs. The October 9th deadline refers to List 1. If List 3 tariffs are imposed it is generally expected that an opportunity to file for exclusion will be announced when they go into effect or shortly after. However, the extremely high volume of exclusion requests expected will put a tremendous strain on the government to process them, with the result that they may take more than the 90 days they are supposed to take to complete. For more information see the history below.
Q7. What about duty suspensions under the Miscellaneous Tariff Bill?
A7. If you successfully filed for a temporary duty suspension under the recently enacted MTB, those duty suspensions will go into effect as scheduled, 30 days from enactment. So if you currently pay duty on an article from China and it's on the MTB list, you will avoid the general duty. However, if the Section 301 duties go into effect you cannot avoid them. They are in addition to the general rate and unaffected by the MTB.
Q8. Can I use a Foreign-Trade Zone to avoid 301 duties?
A8. Possibly. If you use inputs subject to 301 duties and subsequently export those articles, either in the same condition, or after manufacturing, you can avoid 301 duties on exports using FTZ procedures. FTZ procedures will also avoid 301 duties on materials that become waste in the manufacturing process.
HISTORY: THE INVESTIGATION THAT SET THIS ALL IN MOTION
On August 14, 2017, the President issued a Memorandum (82 FR 39007) instructing the Trade Representative to determine whether to investigate under section 301 of the Trade Act of 1974 (Trade Act) (19 U.S.C. 2411), laws, policies, practices, or actions of the Government of China that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development. On August 18, 2017, after consultation with the appropriate advisory committees and the interagency Section 301 Committee, USTR initiated an investigation into certain acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation.
The findings of this investigation were the basis for President Trump's proposal to impose additional tariffs on certain goods of Chinese origin. So far two tranches of tariffs have been imposed and a third is scheduled to be implemented on September 24, 2018.
TRANCHE ONE
On April 3, 2018, USTR released a proposal to place an additional 25% import duty on products covered by 1,333 tariff classifications. The list was published in the April 6, 2018, Federal Register (83 FR 14906).
Interested persons filed approximately 3,200 written submissions. In addition, USTR and the Section 301 Committee convened a three-day public hearing from May 15-17, 2018, during which 121 witnesses provided testimony and responded to questions. Post-hearing comments were accepted through May 22, 2018. 515 items were removed from the list.
On June 15, 2018, 24 days after the close of the comment period, USTR announced the final list.
On July 6, 2018, additional tariffs of 25% began to be applied to those 818 lines.
On July 11, 2018, five days after implementing the tarffs, USTR posted in the Federal Register (83 FR 32181) procedures to apply for exclusions from the 25% tariff on items covered by Tranche 1. The deadline to apply for an exclusion is October 9, 2018. If an exclusion is granted it will be retroactive to July 6th.
TRANCHE TWO
On June 15, 2018, USTR released a proposal to place an additional 25% import duty on products covered by 284 tariff classifications. The list was published in the June 20, 2018, Federal Register (83 FR 28710).
On August 8, 2018, eight days after the close of the July 31, 2018, comment period, USTR announced a list containing 279 of the original 284 tariff lines that were on a proposed list that will be subject to 25% additional tariffs. These went into effect August 23. On September 18, 2018, USTR published in the Requests for exclusions from the additional 25 percent tariff imposed as of Aug. 23 on goods classified under 284 tariff lines when imported from China are due by December 18.
TRANCHE THREE
On July 6, 2018, in response to unfair Chinese practices, the United States began imposing tariffs of 25 percent on approximately $34 billion worth of Chinese imports. These tariffs will eventually cover up to $50 billion in Chinese imports as legal processes conclude. The products targeted by the tariffs are those that benefit from China’s industrial policy and forced technology transfer practices.
China has since retaliated against the United States by imposing tariffs on $34 billion in U.S. exports to China, and threatening tariffs on another $16 billion. The U.S. claims that China did this without any international legal basis or justification. As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports. The U.S. maintains that this is an appropriate response under the authority of Section 301 to obtain the elimination of China’s harmful industrial policies.
On July 17, 2018, USTR posted a third list, this one with over 6,031 items. Comments were due September 6.
On September 17, 2018, (just 12 days after the close of the September 6, 2018, comment period, and just two days after the transcript of the hearing was made available on regulations.com) USTR announced the final tranche 3 list of 5,745 full or partial lines of the original 6,031 tariff lines as the final tranche 3 list with 10% additional tariff to be imposed starting September 24, 2018, and rising to 25% on January 1, 2019. They fully or partially removed 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.
Most observers expect that tranche 3 will have an exclusion procedure, as did tranche 1 and tranche 2. It will likely be announced in a few weeks.
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