On September 17, President Trump announced the imposition of a 10% ad valorem duty on approximately $200 billion worth of Chinese imports, pursuant to Section 301 of the Trade Act of 1974. The Office of the U.S. Trade Representative (USTR) concurrently published the final list of products that will be subject to the additional duty, effective September 24. Beginning on January 1, 2019, the duty will increase to 25% ad valorem.

As discussed in one of our prior alerts, USTR released the initial proposed product list, covering 6,031 tariff lines, on July 10, and subjected the list to a public notice and comment process.1 The final list includes 5,745 of the 6,031 tariff lines that appeared on the initial proposed list. Products removed from the final list include certain consumer electronics products, including smart watches and Bluetooth devices; certain chemical inputs; and certain health and safety related products, such as child seats and bicycle helmets.

The United States is already subjecting two earlier lists of Chinese products to an additional 25% ad valorem duty. The first list (List 1)—covering 818 tariff lines of approximately $34 billion in annual imports—took effect on July 6. USTR has established a process for companies wishing to seek product-specific exclusions from List 1, with a filing deadline of October 9. The second list (List 2)—covering 279 tariff lines of approximately $16 billion in annual imports—took effect on August 23. USTR established a process for seeking exclusions from List 2 on September 17, with a filing deadline of December 18. While the two processes are largely similar, they do include some material differences, as described in further detail below.

This latest round of Section 301 duties could derail efforts to initiate a new round of trade talks between the United States and China and escalate economic tensions between the two countries. Indeed, China has already reacted to the U.S. action by announcing that it will respond by imposing additional 5 or 10% ad valorem duties on $60 billion of U.S. exports, covering 5,207 goods, effective September 24. China has also indicated that it may cancel a previously planned trip by its chief negotiator, Vice Premier Liu He, to meet Treasury Secretary Steven Mnuchin in Washington, DC.

In his September 17 announcement, President Trump warned that if China were to retaliate against the U.S. duties, the United States would "immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports [i.e., the remaining amount of Chinese trade not already subject to duties]." Given China's pledge to do so, it is possible that a "List 4" of Chinese products will soon emerge. It remains to be seen how China would respond to such an event, as it will not be able to match the U.S. duties dollar for dollar, given the trade imbalance that currently exists between the two countries. It is possible that China will adopt alternative ways to retaliate, e.g., by imposing export restraints on key materials, delaying or rejecting customs clearances or license applications, or obstructing pending administrative actions, among other potential actions.

Product-Specific Exclusion Process for List 2 Products

In addition to announcing the List 3 duties, USTR also published procedures for companies wishing to request product-specific exclusions from the $16 billion List 2. Interested parties have until December 18 to file such requests through www.regulations.gov, using docket number USTR-2018-0032. Any product exclusions that USTR grants will be effective for one year after the publication of the relevant decision in the Federal Register and will be retroactive to August 23, 2018 (i.e., the effective date of List 2).

The List 2 exclusion process is substantially similar to the process for requesting product exclusions from List 1. For example, requesters must provide detailed information on the product's physical characteristics; identify the 10-digit Harmonized Tariff Schedule of the United States (HTSUS) subheading most applicable to the product; and address certain factors—primarily relating to the availability of the product from U.S. and third country sources—when describing the rationale for the requested exclusion.2 And like the List 1 process, interested persons will have 14 days to respond to a request after it is posted on regulations.gov, and seven days to reply to any such response.

The key changes in the List 2 process relate to the data that requesters must provide in support of their requests. In addition to the information required for List 1:

  • For imports sold as final products, requesters must provide the percentage of their total gross sales in 2017 that sales of the Chinese-origin product accounted for.
  • For imports used in the production of final products, requesters must provide the percentage of the total cost of producing the final product(s) the Chinese-origin input accounts for and the percentage of their total gross sales in 2017 that sales of the final product(s) accounted for.

WilmerHale continues to monitor these developments closely.

Footnotes

1. The filing deadline for comments on the proposed List 3 was September 6, 2018. See USTR's notice.

2. Specifically, exclusion requests should address whether the product is available only from China; whether the imposition of additional duties on the product would cause severe economic harm to the requester or other U.S. interests; and whether the 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.

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