United States: Hurdles Facing Importers Of Chinese Products Subject To Additional Tariffs

With no end in sight to the U.S.-China trade dispute concerning alleged Chinese policies relating to U.S. technology and unfair trade practices, importers of thousands of products identified by the Office of the United States Trade Representative (USTR) are now obligated to post additional estimated duties of 25 percent and 10 percent ad valorem upon entry of those products into the commerce of the United States.

List 1 was published in the Federal Register on June 20, 2018, and became effective on July 6, 2018. List 2 was published in the Federal Register on August 16, 2018, and became effective on August 23, 2018. List 3 was published in the Federal Register on September 21, 2018 and became effective on September 24, 2018. For Lists 1 and 2, the imposed duty rate is 25 percent ad valorem. For List 3, the initial duty rate imposed is 10 percent ad valorem and that rate increases to 25 percent on January 1, 2019.

In addition to the foregoing, the USTR, in response to requests from the public, announced a policy and procedure permitting interested parties to seek exclusion of products from the identified eight-digit subheadings of products subject to additional Section 301 duties.

Requests for product exclusions subject to List 1 ended on October 9, 2018; and December 18, 2018, for List 2. At this time, USTR has not established a process relating to exclusion of products subject to List 3.

Importers and other parties affected by the imposed additional tariffs should be consulting with their trade advisors and mapping out appropriate strategies. While each situation is unique, areas of consideration should include: alterations in supply chain; status of import/entry transactions that have been subject to the imposition of additional Section 301 duties; careful tracking of the liquidation status of customs entries; and the impact of potential judicial review of actions pertaining to the underlying determinations by the USTR pursuant to Section 301, as well as certain decisions by U.S. Customs and Border Protection (CBP) that may be implicated by reason of the imposition of supplemental Section 301 duties.

A Challenge to the Underlying Section 301 Determination

Although it is generally understood that courts are reluctant to review "political questions" and "discretionary" acts of government in carrying out lawful actions, including the imposition of duties under Section 301, questions such as whether the actions and decisions are within the scope of statutory authority and whether the actions are arbitrary, capricious, abuse of discretion or otherwise not in accordance with law appear well within the scope of judicial review.

Based upon prior court decisions, it appears that the correct forum for such a review is the United States Court of International Trade, pursuant to the court's residual jurisdiction as set forth in 28 USC 1581(i).

Decisions of the Customs Service

Generally, certain decisions of the CBP are subject to administration challenges pursuant to the protest process set forth in 19 USC 1514. The protest must be filed within 180 days after, but not before the date of liquidation or re-liquidation of a customs entry, or, in circumstances where the date of liquidation or reliquidation is not applicable, the date of the decision to which protest is made. Decisions of the CBP that are subject to protest include:

  • the appraised value of merchandise;
  • the classification and rate and amount of duties chargeable;
  • all charges or exactions of whatever character within the jurisdiction of the Secretary of the Treasury;
  • the exclusion of merchandise from entry or delivery or demand for redelivery to customs under any provision of the customs laws, except as otherwise provided by statute;
  • the liquidation or reliquidation of an entry, or reconciliation as to the issue contained therein, or any modification thereof, including the liquidation of an entry, pursuant to certain statutory provisions (19 USC 1500 or 19 USC 1504);
  • the refusal to pay a claim for drawback; or
  • the refusal to re-liquidate an entry under certain statutory provision (19 USC 1520).

Refer to 19 USC 1514 for full coverage of protests against decisions of CBP.

It is necessary to note that a civil action contesting the denial of a protest is barred unless it commenced in the U.S. Court of International Trade, in accordance within the time prescribed by statute (28 USC 2636).

Examples of situations that may call for proactive actions by importers and interested parties include:

  • When an importer believes, based upon the facts of a particular transaction, that a material error has been committed by CBP with respect to the determination of the country of origin of the imported merchandise (e.g., situations where the imported product has undergone a substantial transformation in a country other than China and, thus, a product of that country of manufacture or productions and not a product of China, 19 CFR 134.1(b));
  • The classification of its products under a subheading of the Harmonized Tariff Schedule of the United States (HTSUS) is not subject to Lists 1 through 3;
  • The determination by CBP that a product is classifiable as a "set" and is subject to Section 301 additional duties by reason of a determination that the essential character of the set is controlled by an article in the set that is identified in List 1 through 3;
  • The failure to adjust the appraised value of imported merchandise to exclude the value of products qualifying for adjustments (certain products eligible for duty adjustments under Chapter 98 of the HTSUS); and
  • The denial of a claim for statutory drawback related to certain products exported from the United States that have been manufactured/produced in the United States from imported products that were subject to additional duties under Section 301.

Takeaway

It is recommended that importers be proactive, maintain detailed records regarding importations and, where appropriate, take the necessary steps to protect your rights at both the administrative level and through judicial review of adverse administrative determinations.

For Further Information

If you would like further information about this Alert, please contact Brian S. Goldstein, J. Manly Parks and Thomas R. Schmuhl; any member of the International Practice Group; or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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