USTR Announces 301 Tariff Exclusion Process

On July 6, 2018, the Office of the U.S. Trade Representative (USTR) announced procedures for requesting product exclusions from the  25% tariff imposed on certain Chinese goods under Section 301.

The announcement of exclusion procedures coincided with the imposition of the first phase of tariffs on July 6, 2018 covering 818 tariff subheadings listed in USTR’s Federal Register notice on June 20. https://www.gpo.gov/fdsys/pkg/FR-2018-06-20/pdf/2018-13248.pdf. The tariffs were imposed following USTR’s investigation of the Chinese government related to technology transfer, intellectual property and innovation. The goods identified relate to  industrial sectors that are part of China’s Made in China 2025 initiative.

Interested persons have until October 9, 2018 to request a product exclusion. Requests will be open for response within 14 days after the request is posted in USTR’s docket number USTR-2018-0025 at www.regulations.gov. Replies to responses will be due 7 days after the close of the 14-day response period.

Requests will be considered on a case-by-case basis but the USTR has indicated that exclusions will provide tariff relief principally where: (1) the product is only available in China; (2) duties would cause “severe economic harm;” or (3), the product is not strategically important or related to Chinese industrial programs including, in particular, “Made in China 2025.”

Product exclusion procedure

To address situations that warrant excluding a particular product from the 25% tariff, the USTR is implementing a product exclusion procedure:

• Who is eligible?
  •  Product exclusion requests can be submitted by “interested persons,” which includes various parties impacted by the tariffs, such as importers, manufacturers, consumers, brokers, and trade associations representing parties impacted by the tariffs.
• What is the scope of exclusions?
  • If you are eligible your company may be  permitted to seek exclusion for specific products within a specific subheading of the HTSUS, but not the tariff subheading as a whole (for example, a product defined by its eight-digit code, not its four-digit heading). Interested persons seeking to exclude two or more products must submit a separate request for each product (that is, one product per request). In addition, because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. CBP will apply the tariff exclusions based on the product.
• What is the process? 
  • To apply for a product exclusion, your company  must submit a comment in docket number USTR-2018-0025 on regulations.gov. The comment should be accompanied by a special request form prepared by the USTR (available at ustr.gov.). The USTR has asked requestors not to attach separate cover letters and other documentation to their comment but rather to incorporate supporting information, exhibits, etc. into the request form. As noted above, the deadline for all product exclusion requests is October 9, 2018.
• What information should the request form include?
  • The 10-digit subheading of the HTSUS applicable to product requested for exclusion.
  • Identification of the particular product in terms of the physical characteristics (for example, dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading. It is not sufficient to identify the product only in terms of its producer, importer, ultimate consumer, use, trademarks, trade names, or by using criteria that cannot be made public.
  • The annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years. For trade association requestors, information should be based on members’ data. If precise annual quantity and value data are not available, an estimate with an explanation of its basis is acceptable.
  • Identification of confidential information. The USTR has established a procedure for business confidential treatment where requestors certify that disclosure of certain information (which must be marked) would endanger trade secrets or profitability, and that the information would not customarily be released to the public.
  • An explanation as to why a product exclusion is warranted (see criteria below).
• What will USTR consider in making its decision?
  • The USTR will consider various rationales for granting a product exclusion on a case-by-case basis; however, the following criteria are the ones the USTR has highlighted:
    • Whether the particular product is available only from China. When making such a claim, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States or in third countries.
    • Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.
    • Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
  • In addition to the criteria that USTR has highlighted, requesters should also note whether the Section 301 tariff will place an undue burden on national security interests (for example, projects related to defense or critical infrastructure) and any other information or data that they consider relevant to an evaluation of the request.
• When is the response due?
  • After a request is publicly posted on Regulations.gov, the public will have 14 days to file responses to the request for product exclusion. After the close of the 14-day response period, interested persons will have an additional 7 days to reply to any responses received in support of or opposition to the request.
• When will I know if my exclusion request is approved?
  •  After the response period, the USTR will decide whether to grant the product exclusion request. The USTR has not imposed a deadline for making such determinations and said only that it will publish its decisions periodically in the Federal Register. Once granted, a product exclusion will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018. In the event that an importer has paid the 25% tariff on an item prior to a product exclusion being granted, a refund from CBP will be available.

What steps should you take now?

• Identify the number of specific, distinct products that are subject to the tariff based on country of origin and classification.
• For each product subject to the tariff, compile the following information:
  • A complete and detailed description of the product, including details that distinguish the particular product from other items covered by the same 8-digit subheading of the HTSUS.
  • Data to determine (or estimate) the annual value and quantity (with units) of the Chinese-origin product purchased in 2015, 2016, and 2017.
  • Information that supports the proposition that the products can only be obtained in China. If a product can be obtained outside of China, provide any information that supports the commercial necessity of obtaining the product in China, such as any unique ability of Chinese suppliers to meet demand in terms of quantity, quality, size, specifications, manufacturer qualifications, etc.
  • Specific facts that support the proposition that an additional 25% duty will cause severe economic harm to you or more generally to U.S. interests. Because generalized claims of economic burden are unlikely to be persuasive to the USTR, facts should be provided that explain the specific negative impact a 25% tariff will have on domestic prices, overall demand, production volumes, employment, industry competition, and other economic factors that could threaten your company’s economic viability and/or the industry generally.
  • Information that supports the proposition that the particular product is not related to “Made in China 2025” or other Chinese industrial programs designed to, among other things, foster technology and support industries such as: (1) advanced information technology; (2) robotics and automated machine tools; (3) aircraft and aircraft components; (4) maritime vessels and marine engineering equipment; (5) advanced rail equipment; (6) new energy vehicles; (7) electrical generation and transmission equipment; (8) agricultural machinery and equipment; (9) new materials; and (10) pharmaceuticals and advanced medical devices.

If you need help, we are experienced in representing companies that are impacted by import tariffs. We are well positioned to represent your company and its trade interests before the USTR, CBP, and other agencies engaged in trade regulation.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com