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25 January 2019
The US Trade Representative (USTR) Robert Lighthizer has announced the Trump administration's intention to leave companies subject to the 10% tariff rate under Section 301 List 3 of the Trade Act 1974 without an exclusion process. Further, due to the ongoing federal government shutdown, further delays are anticipated with the review of exclusion requests relating to Section 301 List 1 and Section 301 List 2.
Section 301 List 3 covers $200 billion worth of Chinese goods and 5,745 product lines defined at the eight-digit level of the Harmonised Tariff Schedule of the United States. The tariff rate applicable to List 3 has been set at 10% through 1 March 2019, but will increase to 25% on 2 March 2019, pending ongoing discussions with China (for further details please see "Section 301: more lists and process for product exclusions").
Although there is an exclusion request process for products on Lists 1 and 2 – both of which provide for 25% duties on certain designated imports from China – no exclusion request process has been announced for products on List 3. Moreover, it appears that no exclusion request process will be created, at least while the duty rate remains at 10%. Lighthizer specifically indicated this intention via a letter to Senator Tim Kaine on 11 January 2019, stating that a List 3 exclusion request process will be created only if ongoing talks with China fail and the duty is raised from 10% to 25% on 2 March 2019.
Officials from the United States and China met in Beijing between 7 and 9 January 2019 to hold their first talks since agreeing to the 90-day negotiations in December 2018. Although negotiations were extended by another day, few details have been released on any progress made. The USTR issued a statement indicating that the talks focused on the Trump administration's longstanding efforts to "achieve fairness, reciprocity, and balance in trade relations", including "China's pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the United States". Further talks are scheduled for the end of January 2019 in Washington, DC. However, it remains unclear how much progress will be required to stop President Trump from raising the tariffs to 25% (for further details pleasesee "USTR publishes final Section 301 duty list with eye towards adding more").
The deadline for submitting List 1 exclusion requests with the USTR was 9 October 2018, and the deadline for submitting List 2 exclusion requests with the USTR was 18 December 2018. The List 1 and List 2 exclusion requests are now being reviewed pursuant to the following stages:
However, because the CBP personnel participating in the Stage 3 review have been furloughed, exclusion requests have not moved past Stage 3 since the shutdown began at midnight EST on 22 December 2018. Moreover, the USTR confirmed that approximately 70% of its staff were furloughed as of 14 January 2019 due to a lapse in its appropriations for 2019. As a result, the USTR can continue reviewing exclusion requests only "to the extent possible" until the federal government reopens. The USTR will nonetheless continue to:
On 17 January 2019 'regulations.gov', the federal rulemaking website where parties comment on Section 301 exclusion requests, became unavailable. Despite initial reports attributing the outage to the federal government shutdown, the Environmental Protection Agency, which runs the website, has since clarified that the issue has been caused by a technical glitch. Depending on the duration of the outage, the notice and comment period for Section 301 exclusion requests in Stage 1 may be tolled to account for the interruption.
Given the scrutiny that the CBP is applying when it believes there may be Section 301 tariff evasion by misclassification, mis-declaring origin or undervaluing merchandise to pay a lower duty, the business community should urgently review their internal trade compliance procedures and seek expert advice with any questions or concerns.
For further information on this topic please contact David R Hamill, Teresa Polino, Antonio J Rivera or Leah Scarpelli at Arent Fox LLP by telephone (+1 202 857 6000) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
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