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May 13, 2019
USTR publishes fourth round of exclusions for Chinese-origin products; issues initial denials for next set of product requests
In a 9 May 2019 notice,1 the United States Trade Representative (USTR) announced it was granting exclusions to an additional 35 Chinese-origin products meeting specific listed descriptions and for products covered by five 10-digit Harmonized Tariff of the United States (HTSUS) subheadings. The selected products are currently subject to a 25% punitive tariff as part of the 818 tariff lines covering US$34 billion2 worth of imports from China annually (US List 1).3 This announcement mirrors the prior three exclusion announcements of 21 December 2018,4 21 March 20195 and 18 April 20196 in that it provides relief from the punitive tariffs for one year from the notice date as well as retroactive relief back to the date the tariffs were implemented (6 July 2018) for products meeting the listed descriptions.
With this fourth action, the percentage of granted exclusions to date has increased to 18.06% while denials have increased to 55.41% of the total requested exclusions (10,837 requests were filed under US List 1 which covered $34b of imports from China). Additionally, the USTR released the first set of denials for List 2, covering $16b of imported products from China. While no exclusions have yet to be granted, the USTR has now denied 956 requests, or approximately 33%. List 3, which covers $200b of imports from China and which the USTR moved forward on 9 May 2019 with an increase of 15% to the punitive tariff rate, now set to 25% for exports from China after 9 May, remains without a procedure for importers to request an exclusion. For details, see EY Global Tax Alert, US announces increase of tariffs on List 3 goods imported from China, dated 8 May 2019.
The USTR has recently indicated that it will meet its obligation as established by recent Congressional action to provide an exclusion request process in the near future. Importantly, and unlike the five listed 10-digit HTSUS subheadings, while a tariff code is listed for each of the 35 product descriptions, the exclusion covers only products meeting the description provided, and is not eligible for all products classified under the listed tariff code. Instructions for obtaining refunds on previously imported products covered by the first three exclusion announcements can be found in three Cargo System Messaging Services announcements (CSMS).7 These include filing Post Summary Corrections (PSC) or Protests if the entry has liquidated. Presumably, importers can expect a similar announcement for this fourth set of exclusions.
The notice also provides for the addition of the appropriate HTSUS classification number that importers should reference on future imports of the excluded products, specifically, HTSUS 9903.88.08.
On 22 March 2018, United States (US) President Trump executed a Presidential Memorandum directing the Administration to take a full range of action responding to China’s acts, policies and practices involving unfair and harmful acquisition of US technology.8 The USTR subsequently proposed, and US President Trump ordered, punitive duties of 25% to be imposed and collected on 818 tariff lines covering $34b worth of imports from China annually as of 6 July 2018 (US List 1).
The USTR’s 9 May 2019 Federal Register Notice (FRN) reaffirms that product exclusion decisions will be made based on the criteria stated in the notices establishing the exclusion process. Specifically, the criteria require applicants to provide the following detailed information for consideration of a determination to grant an exclusion: (1) availability of the product outside of China; (2) harm to US interests due to additional tariffs; (3) significance of the product to Chinese industrial policy; and (4) whether an exclusion would undermine the objective of the Section 301 investigation.
Product exclusions apply to any products that meet the description contained in the FRN Annex which are entered for consumption or withdrawn from warehouse on or after 12:01 EST on 6 July 2018 and are not limited to the individual requestor. Exclusions apply retroactively to when the tariffs were implemented, 6 July 2018, and extend for one year after publication of the exclusion notice.
In addition to the HTSUS that is to be declared to reference the excluded products upon entry, 9903.88.08, the FRN notice added five 10-digit HTSUS codes to the list of products that would be excluded and 35 products meeting specific descriptions. This exemption covers roughly 515 separate requests, with the excluded 10-digit subheadings covering 86 separate requests, and the 35 specially prepared product descriptions covering approximately 429 separate requests. These descriptions are highly specific and while they include products that certainly straddle industry sectors, they appear to be predominately concentrated in heavy industrial tools and equipment with a few electronic products, very similar to the third exclusion list.
The full list of excluded products is:
Actions for businesses
Companies who have paid punitive duties on these now excluded products should consider preparing a request for administrative refund by filing a PSC or by filing a protest if the entry has already liquidated. The descriptions of excluded products are highly specific. Consequently, it is imperative that importers carefully review their products against the published descriptions of the excluded products.
With the expiration date of the exclusions being one year from the date of the notice as a potential signal that these tariffs are here to stay for at least a year, and with more than half of the List 1 exclusion requests already denied to date, as well as the recent increase of List 3 tariffs from 10% to 25% effective as of 9 May 2019, companies should continue to consider the following activities to potentially mitigate impact:
2. Currency references in this Alert are to US$.
3. 83 FR 28711.
7. See CSMS#19-000155, CSMS#19-00052 and CSMS#19-000212.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), Chicago
Ernst & Young LLP (United States), Dallas
Ernst & Young LLP (United States), Houston
Ernst & Young LLP (United States), Irvine
Ernst & Young LLP (United States), New York
Ernst & Young LLP (United States), Portland
Ernst & Young LLP (United States), San Diego
Ernst & Young LLP (United States), San Jose
Ernst & Young LLP (United States), Seattle