June 26, 2019 – USTR Announces List 3 Exclusion Request Process and Other US-China Trade Developments
Ivan W. Bilaniuk and Sunni R. Harris – Dinsmore & Shohl LLP
There have been several significant U.S.-China trade developments in June. Notably, the Office of the U.S. Trade Representative (USTR) issued procedures for seeking an exclusion for parties adversely affected by the increased 25 percent tariffs on $200 billion of goods imported from China that came into effect on May 10, 2019 (List 3). The USTR also extended by two weeks the entry deadline to avoid this increased List 3 25 percent tariff. In addition, the USTR held public hearings regarding proposed List 4 tariffs ($300B) and continued to work through the backlog of List 1 and List 2 exclusion requests.
(1) USTR Issues Exclusion Request Process for Section 301 Tariffs on $200B of US Imports from China.
The USTR issued the procedures for parties adversely affected by the List 3 Section 301 China tariffs to seek an exemption — the procedures were published in the Federal Register on June 24, 2019. List 3 is the third round of tariffs the U.S. imposed pursuant to Section 301 of the Trade Act of 1974 on an estimated $200 billion of Chinese goods. An initial 10 percent List 3 tariff was levied as of September 24, 2018. After months-long U.S.-China trade talks faltered, the U.S. increased the List 3 tariff to 25 percent effective May 10, 2019. When the USTR announced this increase, it also confirmed such an exclusion request process would be forthcoming.
The process for seeking an exemption from the tariffs for products on List 3 is similar to the process in place for the previous rounds of tariffs, including, that the exclusions will be evaluated on the following criteria: (1) whether the product is available only from China; (2) whether the tariff on the product would cause severe economic harm to the requestor or other U.S. interests; and (3) whether the product is strategically important or related to Chinese industrial programs, such as the ‘‘Made in China 2025’’ program focused on high technology industries. Unlike previous exclusion requests, however, the USTR seeks additional information such as the requester’s gross revenues; relationship to the product; whether alternative sourcing was contemplated; and the product’s function, application, and principal use. In addition, the requester may report if it satisfies the Small Business Administration’s size standard for a small business.
The USTR will begin accepting exclusion requests on June 30, 2019 via its online web portal, and the submission deadline is September 30, 2019. As with the exclusions from the first and second round of tariffs, a List 3 exclusion granted will be retroactive to September 24, 2018, the day the tariffs were initially imposed.
Affected parties should consider preparing and submitting exclusion requests as soon as possible during the USTR’s three-month submission time window. A backlog of requests will be inevitable, as the below data about pending List 1 and List 2 exclusion requests demonstrates and because there will be many more List 3 exclusion requests. The USTR estimated it will receive 60,000 List 3 exclusion requests, which would be well over four times the number of exclusion requests received for Lists 1 and 2 combined.
(2) USTR Extends by Two Weeks the Entry Deadline to Avoid List 3 25 Percent Tariff.
Initially, the USTR provided List 3 products from China exported to the United States prior to May 10, 2019 were subject only to the 10 percent List 3 tariff, not the increased 25 percent tariff, as long as the product entered the United States before June 1, 2019. On June 10, 2019, however, the USTR extended the entry deadline so that List 3 products from China exported to the United States prior to May 10, 2019 must enter into United States prior to June 15, 2019 to avoid the increased 25 percent List 3 tariff.
(3) Public Hearings on List 4 Proposed Tariffs are Complete.
The USTR has held public hearings that began on June 17, 2019 regarding the proposed tariffs of up to 25 percent on an estimated $300 billion of U.S. imports from China (List 4) that the USTR announced in the Federal Register on May 17, 2019. Over 300 company and industry representatives testified in public hearings ending on June 25, 2019. The USTR has also received more than 2,500 public comments, most of which oppose the imposition of the proposed tariffs. It can be expected progress in U.S.-China trade negotiations will impact whether List 4 tariffs are levied, their level, and timing. See our alert here about the proposed List 4 tariffs.
(4) USTR Continued Progress on the List 1 and List 2 Exclusion Request Backlog.
The USTR’s June 21, 2019 update for Lists 1 and 2 exclusion requests indicates continued progress in processing the backlog of requests. The initial substantive review to determine whether a request should be granted based on the USTR’s product exclusion criteria is nearly completed — only 103 requests remain in this stage for Lists 1 and 2 combined. For List 1, a new round of granted exclusions was published in the Federal Register on June 4, 2019, bringing the total exclusions granted to 2421, or 22 percent of the total. There are 6291, or 58 percent, denied List 1 requests and 2095, or 19 percent, List 1 pending requests in Stage 3, in which the requests are evaluated with input from U.S. Customs and Border Protection (CBP) to determine whether they can be administered. No List 2 exclusion requests have yet been granted. A little over half of submitted List 2 requests remain pending in Stage 3 (1579 of 2920 requests) and 1259, or 43 percent, have been denied. See the updated chart below summarizing the status of the exclusion request process for Lists 1 and 2.
Note: Exclusion request data is compiled from the most recent USTR exclusion request index updates for List 1 and List 2 dated June 21, 2019.
During this U.S.-China trade dispute, Dinsmore & Shohl LLP continues to work with clients to evaluate options and develop strategies to mitigate the effects of these tariffs, including reviewing tariff classifications on the Harmonized Tariff Schedule, reviewing country of origin of imported products, evaluating potential changes to product supply chains and the possibility of setting up a foreign-trade zone (FTZ), and preparing product exclusion requests. For more information, contact Ivan W. Bilaniuk or your Dinsmore attorney.
 The USTR estimated it would receive 60,000 List 3 exclusion requests in its information collection request that it submitted to the Office of Management and Budget (OMB) in May concerning the List 3 exclusion request form.