Alerts and Updates

U.S. Tariffs on Chinese-Origin Products Hit 25 Percent

May 14, 2019

While the market was waiting in hopes that the U.S.-China trade disputes could be resolved when negotiators met and continued their trade talks, the Office of the United States Trade Representative (USTR) on May 9, 2019, published an updated Notice of Modification of Section 301 Action: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (84 FR 20459). Effective May 10, 2019, the duty rate on imports from China―covering the over 5,700 full and partial eight-digit subheadings of the Harmonized Tariff Schedule (HTS) listed in Annex A to the USTR’s September 21, 2018, notice, as amended―has increased to 25 percent.

Background

As we reported in previous Alerts[1], on September 21, 2018, the USTR published notice in the Federal Register of the imposition of 10 percent additional duties on certain Chinese products, effective September 24, 2018. The duty rate on these products was initially scheduled to rise to 25 percent ad valorem on January 1, 2019. However, that increase was delayed pending the continuation of negotiations.

These duties followed a buildup in conflict that included investigations into China’s alleged forced technology transfer and unfair trade practices under Section 301 of the Trade Act of 1974. This resulted in notices imposing import duties on three separate lists of Chinese products: List 1, 83 FR 28710; List 2, 83 FR 40823; and List 3, 83 FR 47974.

The May 9 USTR notice increases the duty rate to 25 percent on imports of $200 billion worth of products on List 3 (as amended) from China. Following the updated notice, on May 10, 2019, U.S. Customs and Border Protection (CBP) issued guidance in Cargo Systems Messaging Service (CSMS) #19-000238 on the effective date of duty increase for List 3 products of Chinese origin.

CBP Guidance on Change in Effective Date of Duty Increase

Importers are to report on their entry documents for HTS numbers 9903.88.03 and 9903.08.04 a duty rate of 25 percent for subject goods entered for consumption or withdrawn from warehouse for consumption on or after 12:01 a.m. Eastern Standard Time on May 10, 2019, and exported to the United States on or after May 10, 2019. Further, goods under these HTS numbers are subject to a 25 percent rate of additional duties if entered into the United States on or after June 1, 2019.

For HTS number 9903.88.09, the duty rate is 10 percent for the subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Standard Time on May 10, 2019, and before June 1,2019, and exported to the United States before May 10, 2019.

Perhaps in an effort to ease market reactions and prevent massive disruption, the CBP provides that any goods exported prior to May 10 and entered for consumption or withdrawn from warehouse for consumption on or after May 10 and before June 1, 2019, will still be subject to the 10 percent duty rate, rather than the 25 percent duty rate.

Currently, the CBP’s system is programmed to calculate duty at 25 percent on goods arriving on or after May 10, 2019. The CBP suggests two different options for importers with shipments that may be eligible for the 10 percent duty rate:

  • Importers may pay the 25 percent duty rate and file a postsummary correction when filing instructions become available for 10 percent duty rate;
  • Importers may delay filing the entry summary during the standard 10-day entry summary filing period until the additional instructions become available.

The Section 301 duties only apply to products of China, and are based on the country of origin, not country of export.

The USTR has promised to establish a process by which interested persons may request that particular products classified within a tariff subheading covered by the September 2018 action be excluded from the additional duties. The USTR further promises that it will publish a separate notice describing the product exclusion process, including the procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to a request. CBP is working with the USTR on additional guidance for the entry filing requirements for the goods still subject to the 10 percent rate of duty.

Impact of Additional Tariffs

Given the broad scope of List 3, it is estimated that these additional tariffs will cause disruptions to manufacturing, distribution and supply chains. The 25 percent tariffs could also prompt cancellation of projects and the elimination of follow-up business with China.

China responded on May 13, 2019, saying it would impose up to 25 percent tariffs on $60 billion worth of U.S. imports in retaliation for U.S. tariffs imposed on May 10, 2019, escalating the U.S.-China trade war. It is reported that the U.S. government has begun the process of expanding U.S. tariffs to cover all $540 billion of Chinese imports not already subject to the Section 301 additional tariffs. 

Takeaways

Importers and other parties affected by the additional tariffs should pay close attention to any policy changes and updates from both the U.S. and China. It is critical that they stay in contact with trade advisors and take the opportunity to submit oppositions to have products excluded from the additional tariffs for List 3. It is also important for importers and other affected persons to identify vulnerabilities in their current supply chains to avoid potential disruptions from their customers and distributors, and map out a strategy to deal with the possibility that the tariffs may linger. Considerations should include, at least, rethinking their supply chain and developing relationships with foreign producers outside of China that are located closer to the end-use markets. Importers should familiarize themselves with the “country of origin” rule and consult with their trade advisors to ensure whether a product they intend to manufacture or purchase in a third country are of China origin or of a third country and whether such products would be subject to additional tariffs. If in doubt, importers would be best to seek rulings from the CBP confirming country of origin.

For More Information

If you would like further information about this Alert, please contact Brian S. Goldstein, Yuanyou (Sunny) Yang, J. Manly Parks, Nathan B. Reeder, any member of the International Practice Group or the attorney in the firm with whom you are regularly in contact.

[1] Related Alerts

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.