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June 16, 2021 | Ben Bidwell Director of North American Customs & Compliance

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How the U.S. Innovation and Competition Act (USICA) May Affect Section 301 China Tariff Exclusions

Could Section 301 China tariff exclusions become a reality once again?

The U.S. Innovation and Competition Act (USICA) is making its way through Congress with heavy bipartisan support. The legislation passed through the Senate on June 8, 2021, and will now be taken up by the House of Representatives. While the bill contains a surplus of various trade concepts, the USICA also addresses Section 301 China duty exclusions.

If passed by the House and signed by the President, USICA could have a very large impact on the import trade community, especially since approximately two-thirds of Chinese product will still be subject to additional duties ranging from 7.5% to 25%. Refer to our trade war timeline for details on the current situation.

Is a new duty exclusion request process coming?

Throughout the last couple of years, the United States Trade Representative (USTR) has granted roughly 2,357 duty exclusions from the Section 301 “China trade war” tariffs. Many of them (we estimate about 83%) have since expired, leaving just medical products and other articles used in the fight against COVID-19 eligible to avoid additional duty rates for a few more months.

However, the bill that the Senate recently passed (Section 73001 – Title III) states: “…the USTR shall establish and maintain a process for exclusion requests from duties under Section 301 unless the Trade Representative determines and certifies to the appropriate congressional committees that maintaining an exclusion process (a) would impair the ability of the United States to maintain effective pressure to remove unreasonable or discriminatory practices burdening commerce in the United States; or (b) is impractical due to the low value of duties imposed (S3567-S3568).” Therefore, it remains to be seen if a new duty exclusion request process will come with a new law.

Reauthorization of previous duty exclusions that have since expired

Section 73001 of the USICA also seems to indicate that all previously covered duty exclusions would be reinstated from the date of passage of the legislation through the end of calendar year 2022. This covers over 2,200 unique exclusions that importers could once again take advantage of to avoid the additional duty rates from the Section 301 China tariffs.

Certain expired duty exclusions may be eligible for a retroactive duty refund

According to the Senate-passed bill, duty exclusions that expired on December 31, 2020 (and only on that date), would be made retroactive between January 1, 2021, and the date of passage.

The language of the bill is as follows: “…notwithstanding Section 514 of the Tariff Act of 1930 or any other provision of law and subject to subparagraph (B), any entry of a covered article on which duties were paid under Section 301(b) of the Trade Act of 1974 and to which a covered duty exclusion would have applied on December 31, 2020, that was made – (i) after December 31, 2020, and (ii)  before the date of the enactment of this Act, shall be liquidated or reliquidated as though such entry occurred on such date of enactment…A liquidation or reliquidation may be made…if a request therefor is filed with U.S. Customs & Border Protection not later than 180 days after the date of the enactment of this Act.”

How much is in scope for retroactive application?

To understand the retroactive impact of this legislation, we need to look at the numbers. There were approximately 472 exclusions that expired on December 31, 2020.

Of those expired exclusions, 21 were harmonized tariff schedule (HTS) code-specific exclusions, meaning that any import using one of those 21 HTS classification numbers would be eligible for tariff relief. The remaining 451 expired exclusions were at the specially prepared product description level provided by the USTR, meaning that the imported product must not only fit the HTS code but also the specific exclusion language.

Duty refund without interest and next steps

While this could be a big win for the importing community previously taking advantage of Section 301 exclusions, it also means that there is work ahead to address shipments that could become eligible for a refund from the retroactive exclusions. Please note that duties would be refunded without interest.

Take steps to ensure that you are taking advantage of all reinstated exclusions if/when this legislation becomes law. Don’t tackle this task alone. Lean on your customs broker, trade consultant, or attorney to identify any refund opportunities that may exist.

C.H. Robinson is monitoring this legislation closely and is looking forward to assisting our shippers in ensuring all refund opportunities are identified and maximized. While this legislation moves through the remaining branches of government, we will continue to post updates as changes are made or new milestones are reached.

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Trade & Tariff Resources

Get the latest news regarding tariffs and trade that can impact your business. We break down the variables of recent changes into simple, effective summaries you can use to better understand the ever-changing and often complicated trade policy and enforcement environment.

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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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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All content and materials discussed herein are for informational purposes only and do not constitute legal advice. You should always independently check the related Code of Federal Regulations (CFR) and, if needed, consult with the applicable Federal Agency (e.g. CBP, USTR) and/or external counsel where any question or doubt exists. Information on this site is the property of C.H. Robinson. Any transmission or use without C.H. Robinson’s permission and approval is not allowed or authorized.