Requesting Product Exclusions under Section 301 Duties
The first round (or “tranche”) of 25% punitive duties on Chinese-origin goods went into effect at midnight on July 6, 2018. The Office of the United States Trade Representative (USTR) issued the additional tariff under Section 301 of the Trade Act of 1974, as amended, as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property. The initial set of duties targets approximately $34 billion of imports of Chinese-origin goods and contains over 500 subheadings of the Harmonized Tariff Schedule of the United States (HTSUS).
Effective at midnight on August 23, 2018, an additional $16 billion of imported Chinese-origin goods were targeted for Section 301 duties. Nearly 300 additional HTSUS subheadings appear on “List 2,” which was carved out of the initially announced “List 1.”
When List 1 became effective, USTR published a formal notice in the Federal Register announcing a procedure for “interested persons” to request the exclusion of particular products covered by a classification subheading subject to the punitive Section 301 duties. As of this writing, nearly 1,000 requests have been filed with USTR. Although, the Federal Register notice for requesting product exclusions for subheadings on List 2 has not been published as of this writing, USTR has stated that the exclusion process will apply to products covered by List 2 subheadings.
The current product exclusion procedure for items covered by subheadings on List 1 remains open through October 9, 2018 – 90 days after the Section 301 duties went into effect. It is anticipated that the period for requesting product exclusions for items covered by List 2 subheadings will be open through November 21, 2018. USTR prefers that exclusion requests are electronically filed via www.regulations.gov under the appropriate docket number.
Exclusion requests are limited to one (1) product per request, so for many companies it will be necessary to submit several requests, as seen already. Since the requests will be posted for public view, if there is any business confidential information (such as identifying U.S. customers, import volumes and values, etc.), two (2) filings must be made – one with business confidential information as well as a public version for posting.
All requests must include a certification statement that the information provided is complete and correct to the best of the certifier’s knowledge; business confidential filings must contain a certification that disclosure of the information would endanger trade secrets or profitability; and the information is typically not released to the public.
Submissions must be identified by a file name that includes the 10-digit HTSUS subheading (HS code) for the particular item and the company’s name (e.g., 1234.56.7890 ABC Corp.).
After the request is filed and posted online, parties can submit a response to the request for exclusion, fourteen (14) days after the request is posted. A response might be filed by U.S. competitors, unions or trade associations that oppose the exclusion request. The requestor then has seven (7) days to submit a reply to the response(s) and address points raised therein.
Each product exclusion request must:
- Specifically identify the product for which the exclusion is requested;
- Provide supporting data; and
- Provide the reasoning for the requested exclusion.
For the product identification, the request must identify the physical characteristics (e.g., dimensions, material composition or other characteristics) of the particular product that show it is different from other products covered by the 8-digit HTSUS subheading that also covers the product to be excluded.
- USTR will not consider requests that identify the product by the name of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames.
- USTR will not consider requests that identify the product by using criteria that cannot be made available to the public.
The requestor can also submit information on the ability of U.S. Customs and Border Protection (CBP) to administer the exclusion.
The request must also provide the annual quantity and value of the Chinese-origin product that the importer purchased in each of the last three (3) years.
For the reasoning on why the exclusion should be granted, each request should address whether:
- The particular product is available only from China, including whether the particular product or a comparable product is available from sources in the U.S. or other countries;
- The additional duties will cause severe economic harm to the requester or other U.S. interests; and
- The particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
The requestor may also provide any other information or data it considers relevant to an evaluation of the request.
Effect of Exclusion
USTR will evaluate each request on a case-by-case basis, considering if the exclusion would be contrary to the objective of the Section 301 investigation.
If an application is granted for a particular product, the exclusion will be effective starting from the date the Section 301 tariff went into effect – July 6, 2018 (List 1) and August 23, 2018 (List 2) – and remain in effect for one (1) year after publication of the exclusion decision in the Federal Register. Additionally, because exclusions will be issued on a product-basis, any particular exclusions granted will apply to all imports of the product regardless of whether the importer filed a request. This means competitors will share in the fruits of a requestor’s successful exclusion request.
Because the exclusion will be effective retroactively, duties paid on entries made prior to the exclusion should be refunded by CBP, with interest.
Should you have any questions regarding Section 301 duties and product exclusion requests, or customs and importation, more generally, please contact Jon P. Yormick, Special Counsel, at firstname.lastname@example.org or (716) 847-7006.