On July 10, the Office of the United States Trade Representative (USTR) released a list of Chinese products that may become subject to an additional duty of 10% ad valorem, pursuant to Section 301 of the Trade Act of 1974. The proposed product list covers a broad array of products with an annual trade value of approximately $200 billion, ranging from frozen meats to beauty products, chemicals, textiles, minerals and furniture, among others. It is the latest step in the ongoing USTR investigation into the Chinese technology transfer, intellectual property and innovation-related laws, policies and practices that USTR determined in its Section 301 report to be "unreasonable or discriminatory" and that "burden or restrict U.S. commerce."
The announcement came just three weeks after USTR stated that it would subject a first set of Chinese products—covering 818 tariff lines of approximately $34 billion in annual imports—to an additional duty of 25%, effective July 6, 2018, and published a second set of proposed Chinese products—also subject to an additional 25% duty, and covering an additional 284 tariff lines of $16 billion in annual trade—that is currently subject to a public notice and comment process.
China responded to the initial set of US duties by imposing increased duties on an equivalent volume of exports of the United States. USTR cited China's action in its latest announcement, asserting that it was responding to "China's decision to respond to the [Section 301] investigation by imposing duties on U.S. goods," rather than "addressing U.S. concerns with the unfair practices found in the investigation."
As with the prior two product lists, USTR will subject this third list to a public notice and comment process, including a hearing, before determining which of the proposed products will be subjected to the additional 10% duty. The applicable dates for the notice and comment process are as follows:
- July 27 – Deadline to request to appear at the hearing and provide a summary of testimony
- August 17 – Comments due
- August 20 – Hearing
- August 30 – Post-hearing rebuttal comments
As WilmerHale has previously reported, China has responded to the previous Section 301 duties by imposing similar duties on an equivalent amount of US exports. That will not be possible here, as the amount of potentially impacted Chinese trade exceeds annual US exports to China. Consequently, it is possible that China will look for other means to pressure US interests, including obstruction of pending transactions, Customs clearance rejections or delays, licensing and administrative delays or denials, and various other measures, in addition to tariff actions.
Establishment of Product Exclusion Process for First Set of Chinese Products
In addition to the July 10 announcement, USTR has also published a Federal Register notice setting out procedures for companies wishing to seek product-specific exclusions from the initial $34 billion product list that took effect on July 6. Key procedural details include the following:
- Interested parties have until October 9, 2018, to file exclusion requests.
- Interested persons, including trade associations, may submit exclusion requests. This is a departure from the approach that the US Department of Commerce took in the product exclusion process for the "Section 232" tariffs on imports of steel and aluminum, which had attracted significant criticism.
- An exclusion will apply to a particular product classified within one of the relevant US Harmonized Tariff Schedule (HTSUS) subheadings. Interested persons seeking to exclude two or more products must submit a separate request for each product (i.e., one product per request).
- An exclusion will be effective starting from July 6, 2018 (the effective date of the additional duties), and will extend for one year after the publication of the exclusion determination in the Federal Register. In other words, an exclusion, if granted, will apply retroactively to the July 6 date of the imposition of the additional duties.
- USTR will periodically announce decisions on pending requests.
Specific Information on Exclusion Requests
- With regard to product identification, any request for
exclusion must include the following information:
- Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition or other characteristics) that distinguish it from other products within the covered eight-digit subheading. USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames.
- The 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion.
- Requesters may also submit information on the ability of US Customs and Border Protection to administer the exclusion.
- Requesters must provide the annual quantity and value of the Chinese-origin product that the requester purchased in each of the past three years (trade associations may provide aggregated data for their members).
- With regard to the rationale for the requested exclusion, each
request for exclusion should address the following factors:
- Whether the particular product is available only from China. The notice instructs requesters to address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
- Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other US 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.
- After a request for exclusion of a particular product is posted on www.regulations.gov, interested persons will have 14 days to respond to the request, indicating support or opposition and providing reasons for their view.
- After a response is posted on regulations.gov, interested persons will have seven days to reply to the response.
- All submissions must include a statement that the submitter certifies that the information provided is complete and correct to the best of his or her knowledge.
- USTR has prepared a request form for use in submitting requests. USTR strongly encourages interested persons to use the form, though use of the form is not required.
WilmerHale continues to monitor these developments closely.
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