Trade Compliance Flash: USTR Releases Tariff Exclusion Process for Products Covered by List 3
The Office of the United States Trade Representative (USTR) has announced a product-specific exclusion process for the China-origin products covered by the third tranche of tariffs imposed under Section 301 of the Trade Act of 1974. This third tranche of tariffs, also known as "List 3," includes nearly 6,000 tariff subheadings from the Harmonized Tariff Schedule of the United States (HTSUS), accounting for approximately $200 billion worth of U.S. imports from China. The key takeaways are as follows:
- Exclusion requests must be submitted through a web portal set up by USTR, which will become operational on June 30, 2019. The deadline to submit exclusion requests is September 30, 2019.
- Requestors will be required to register on the portal. Requestors will then be permitted to fill out USTR's online Exclusion Request Form, a summary of which we provide here.
- Requests must be product-specific and administrable, which means that U.S. Customs and Border Protection (CBP) must be able to consistently identify and correctly classify the covered product at time of entry. Specifically, USTR's Exclusion Request Form asks for "a complete and detailed description of the product of concern," which includes, but is not limited to:
- The product's physical characteristics (e.g., dimensions, weight, material composition, etc.);
- Whether product is designed to function in or with a particular machine (application); and
- Any unique physical features that distinguish it from other products within the covered by the same tariff subheading.
- USTR will only consider arguments in favor of an exclusion submitted in answer to 17 questions on the Exclusion Request Form, which focus on the following themes:
- Whether the product, or a comparable product, is available from sources in the United States.
- Whether the product, or a comparable product, is available from sources in third countries.
- Whether the requestor of the exclusion has attempted to source the product from United States or third countries.
- Whether the imposition of additional duties since September 2018 on the product has resulted in severe economic harm to the requestor or other U.S. interests.
- Whether the particular product of concern is strategically important or related to "Made in China 2025" or other Chinese industrial programs.
- Whether the requestor has sought exclusion for their products in prior tariff actions.
- Whether the requestor is a small business, as determined by the size standards established by the Small Business Administration (SBA).
- If an exclusion request is granted, it will be effective for a period of one year after the publication of the exclusion determination in the Federal Register and will apply retroactively to entries of the product made on or after September 24, 2018 (i.e., the effective date for List 3).
Based on our experience seeking exclusion requests for Lists 1 and 2, we anticipate that requestors will have the greatest chance for success when they can demonstrate that a product is effectively available only from China, despite efforts to find alternative sourcing. In addition, requestors will be required to demonstrate severe economic harm to their company, such as decreases in revenue, market share, U.S. employment, and U.S. investment. Small businesses are likely to enjoy an advantage in requesting exclusions as well.
We will continue to monitor USTR's actions in connection with the List 3 exclusion process and update this Trade Flash as appropriate.
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