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This Week's Trade & Tariff Perspective

October 20, 2021 | Anahi Czeszewski Trade Policy Advisor

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Navigating the United States—China Trade War Tariffs

The United States Trade Representative (USTR) said that the Biden Administration intends to conduct an in-depth review of China’s performance under the Phase One Agreement as part of its overarching vision to realign the United States’ trade policy. In addition, the USTR started a targeted tariff exclusion process and stated that they will keep open the potential for additional exclusion processes in the future.

What does all of this mean? Read on to learn about the upcoming opportunities available that you need to be aware of, and potentially act upon quickly, in order to take advantage of duty exclusions from China trade war tariffs.

Which duty exclusions will the USTR review?

The USTR, as published within the Federal Register notice, intends to evaluate the 549 specific product exclusions—on a case-by-case basis—with the possibility of granting extensions. Most of these product exclusions expired as of December 31, 2020.

The primary focus for reinstating each exclusion relates to whether each specific product is currently available only from China. Commenters are thereby instructed to address the following:

  • Is the product, and/or a comparable product, available from sources in the United States and/or in third countries?
  • Have there been any changes in the global supply chain since September 2018, with respect to the product or any other relevant industry developments?
  • Have there been any efforts by importers or U.S. purchasers since September 2018, to source the product from the United States or third countries?
  • What is the domestic capacity for producing the product in the United States?

In addition, the USTR will consider whether reinstating the exclusion will impact or result in severe economic harm to the commenter or other U.S. interests—including the impact on small businesses, employment, manufacturing output, and critical supply chains in the United States. The overall impact of the exclusions on the goal of obtaining the elimination of China’s acts, policies, and practices covered in the Section 301 investigation is also under consideration.

How does this impact the import trade community?

Understanding that there is still significant work to do on the path towards realigning the United States – China trade relationship, the key takeaway that Ambassador Tai made is that the trade measures currently in effect (the additional 7.5% to 25% duties) do not appear to be going away anytime soon. In fact, Tai said that it is the Administration’s objective to explore all options and means to continue enforcing a significant trade reform in its path forward.

There are approaches that your company can take to navigate the trade environment and better understand your true landed cost. For instance, be proactive in this seemingly ever-changing trade environment, by using some of the following tools at your disposal.

How do I submit a comment to reinstate the exclusion for my product or block one that may negatively impact my company?

Review your eligibility for the 549 product exclusions and understand the specific product descriptions. If your products match one of these exclusions, the public docket will be open for just fifty days, so ensure you allocate enough time to gather the required details.

Submit your comment with the necessary supporting rationale. You can expect a high level of scrutiny by the USTR during the in-depth review, so it’s crucial you provide the required information by the December 1, 2021 deadline. Consult with your trade attorney, as necessary.

How can the U.S. Innovation and Competition Act (USICA) affect tariff exclusions?

The U.S. Innovation and Competition Act (USICA) was passed through the Senate on June 8, 2021, and has made its way to the House of Representatives. Notably, the USICA addresses Section 301 China duty exclusions. If the USICA is passed by the House, and subsequently signed by the President, it can largely impact the import trade community.

In particular, all previous duty exclusions would be reinstated from the date of passage of the legislation through December 2022. Moreover, according to the bill, the specific duty exclusions that expired on December 31, 2020, would be retroactively reinstated between January 1, 2021, and the date of passage.

Am I eligible for duty refunds and/or duty exclusions?

Under USICA, there may be potential to collect refunds on duties you previously paid to U.S. Customs and Border Protection, and you could potentially benefit going forward from Section 301 duty exclusions.

Understanding that approximately two-thirds of Chinese products are currently subject to additional duties ranging from 7.5% to 25% and likely affecting most of the import trade community, ensure that you are well positioned to take advantage of these possible reinstated exclusions if and when the legislation becomes law. Please note, though, that duties would be refunded without interest.

How can C.H. Robinson help?

C.H. Robinson’s team of knowledgeable Trusted Advisor® experts can assist you with reviewing the options to effectively navigate these events. Connect with one of our trade policy experts to learn more.

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Section 301 - Unfair trade practices

What is it?

Section 301 of the Trade Act of 1974 — Allows the United States Trade Representative (USTR) to suspend trade agreement concessions or impose import restrictions if it determines a U.S. trading partner is violating trade agreement commitments or engaging in discriminatory or unreasonable practices that burden or restrict U.S. commerce.

Background ReportCongressional Research Service – Section 301 of the Trade Act of 1974 – August 2020

Section 232 - National security concerns

What is it?

Section 232 of the Trade Expansion Act of 1962—Allows the president to adjust imports if the Department of Commerce finds certain products are imported in such quantities or under such circumstances as to threaten to impair U.S. national security.

Background ReportCongressional Research Service – Section 232 Investigations: Overview and Issues for Congress – August 2020

Section 201 – Cause/threat to domestic industry

What is it?

Section 201 of the Trade Act of 1974—Allows the president to impose temporary duties and other trade measures if the U.S. International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry.

Background ReportCongressional Research Service – Section 201 of the Trade Act of 1974 – August 2018

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Compliance checklists, on-demand webinars, and more from U.S. Customs and Border Protection.

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Trade & Tariff FAQs

Q: What is a tariff?

Tariffs or duties are taxes assessed on imports of foreign goods, paid by the importer to the U.S. government, and collected by U.S. Customs and Border Protection (CBP). Current U.S. tariff rates may be found in the Harmonized Tariff Schedule (HTS) maintained by the U.S. International Trade Commission (ITC). The U.S. Constitution grants Congress the sole authority to regulate foreign commerce and therefore impose tariffs, but, through various trade laws, Congress has delegated authority to the president to modify tariffs and other trade restrictions under certain circumstances.1

Q: What are various types of import restrictions that can be imposed by the government?

Tariffs – A tax on imports of foreign goods paid by the importer. Ad valorem tariffs are assessed as a percentage of the value of the import (e.g., a tax of 25% on the value of an imported truck). Specific tariffs are assessed at a fixed rate based on the quantity of the import (e.g. 7.7% per kilogram of imported almonds), and are most common on agricultural imports.

Quotas – A restriction on the total allowable amount of imports based either on the quantity or value of goods imported. Quotas are in place on a limited number of U.S. imports, mostly agricultural commodities, in part due to past trade agreements to remove and prohibit them.

Tariff-Rate Quota (TRQ) –TRQs involve a two-tiered tariff scheme in which the tariff rate changes depending on the level of imports. Below a specific value or quantity of imports, a lower tariff rate applies. Once this threshold is reached, all additional imports face a higher, sometimes prohibitive, tariff rate.

Q: Have U.S. trading partners taken or proposed retaliatory trade actions?

Yes. Some U.S. trading partners subject to the additional U.S. import restrictions have taken or announced proposed retaliations against each of the three U.S. actions. Since April 2018, a number of retaliatory tariffs have been imposed on U.S. goods accounting for $126 billion of U.S. annual exports, using 2017 export values.

Q: How much has the U.S. government collected from the various trade remedy measures?

U.S. Customs and Border Protection (CBP) assesses and collects duties on U.S. imports, including the additional duties imposed as a result of the president’s tariff actions. As of September 9, 2020, U.S. CBP has reported the following duty assessments.

Q: Are products of Hong Kong subject to the additional Section 301 duties against China?

No. Additional duties imposed by the Section 301 remedy only apply to articles that are products of the People’s Republic of China (ISO Country Code CN). Imported goods that are legitimately the product of Hong Kong (HK) or Macau (MO) are not subject to the additional Section 301 duties. Please note that Section 301 duties are based on country of origin, not country of export.2

Q: Are Section 301 duties eligible for drawback?

As noted in CSMS Message 18-000419, Section 301 duties are eligible for duty drawback. Drawback is the refund of certain duties, internal revenue taxes, and certain fees collected upon the importation of goods. Such refunds are only allowed upon the exportation or destruction of goods under U.S. Customs and Border Protection supervision.

Q: What is the timing of duty calculations on immediate transportation in bond entries subject to Section 301?

Duties are due on goods that are entered for consumption, or withdrawn from warehouse for consumption, on or after the effective date of the provisional tariffs. For entries covered by an entry for immediate transportation, and with a country of origin of China, and a Harmonized Tariff Schedule (HTS) classification covered by Annex A to the FRN, such entries shall be subject to the duty rates in effect when the immediate transportation entry was accepted at the port of original importation, pursuant to 19 CFR 141.69 (b), which states:
Merchandise which is not subject to a quantitative or tariff-rate quota and which is covered by an entry for immediate transportation made at the port of original importation, if entered for consumption at the port designated by the consignee or his agent in such transportation entry without having been taken into custody by the port director for general order under section 490, Tariff Act of 1930, as amended (19 U.S.C. 1490), shall be subject to the rates in effect when the immediate transportation entry was accepted at the port of original importation.

Q: Are products entered under the Section 321 de minimis exemption (under $800) subject to Section 301 duties?

No, not right now. Goods properly entered under Section 321 are not subject to Section 301 duties. Please note that a formal entry is required if a shipment contains merchandise subject to AD/CVD. Goods subject to AD/CVD do not qualify for Section 321. Something to keep an eye on: U.S. Customs and Border Protection (CBP) submitted a proposal in early September 2020 to the Office of Management and Budget that would eliminate the $800 de minimis exemption for goods subject to Section 301 tariffs. Remember, Section 321, 19 USC 1321 is the statute that describes de minimis. De minimis provides admission of articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed $800. The de minimis threshold was previously $200, but increased with the passage of the Trade Facilitation and Trade Enforcement Act (TFTEA).

Q: Can I still apply for exclusions to the Section 301 (China) tariffs?

The time window to submit new exclusion requests is now closed, but the USTR is considering extensions of exclusions granted from Lists 1, 2, 3, and 4. While the USTR approved, on average, 35% of requests under the first two actions, the approval rates under the third and fourth actions were 5% and 7%, respectively.3 Be sure to check in with your trusted trade advisors to see if new comment periods open.

Q: Are products used to support the fight against COVID-19 subject to the additional Section 301 (China) tariffs?

The USTR announced on March 20, 2020, that, prior to theCOVID-19 outbreak, the agency had been working with the U.S. Department of Health and Human Services “to ensure that critical medicines and other essential medical products were not subject to additional Section 301 tariffs.” Consequently, the United States had not imposed tariffs on certain critical products, such as ventilators, oxygen masks, and nebulizers. Moreover, the USTR indicated that, in recent months, it has prioritized the review of requests for exclusions on medical care products, resulting in exclusions granted on basic medical supplies, including gloves, soaps, face masks, surgical drapes, and hospital gowns. Since March 2020, the USTR has exempted certain medical products from Section 301 tariffs in several rounds of exclusions.3

Q: How do I find out if my product is subject to Section 301 tariff duties?

Enter the product’s harmonized tariff schedule (HTS) classification on the USTR website. In addition, you can refer to our exclusive guide to quickly search both the Section 301 tariff lists but also identify if there are any exclusion opportunities. Talk to your Trusted Advisor® expert at C.H. Robinson to learn more.

Q: Do Section 301 (China) duties still apply if I ship goods to another country, such as Canada or Mexico, and have them packaged there before entering the commerce of the United States?

Yes. Basic changes/processes such as packaging, cleaning, and sorting would not change the country of origin to be declared in most cases. The origin would still be China and therefore the Section 301 duties would still apply.

Q: If I previously paid Section 301 (China) duties, but an exclusion was later issued by the United States Trade Representative (USTR), can I get my money back?

Yes. You have the opportunity to potentially recover duties paid on previous entry activity. Your customs broker, trade attorney, or trade consultant can submit a refund request via Post Summary Correction (PSC) or Protest as long as the entry has not exceeded the liquidation date plus 180-day time period (roughly 480 days from the original entry date). Remember, your company doesn’t have to be the one that requested the exclusion in the first place. You qualify as long as your product meets the specific description of the exclusion granted by the USTR.

Q: Does U.S. Customs and Border Protection (CBP) pay interest when refunding duties previously paid?

Yes! CBP does pay interest from the date the original money was deposited. The current interest rates are published in the Federal Register on a quarterly basis. Review the most recent Federal Register Notice for the latest rates.

References

1. Congressional Research Service – Trump Administration Tariff Actions (Sections 201, 232, and 301): FAQs

2. Section 301 Trade Remedies Frequently Asked Questions

3. Congressional Research Service - Section 301: Tariff Exclusions on U.S. Imports from China

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