The spending package signed by President Trump on February 15, 2019, directs the Office of the U.S. Trade Representative (“USTR”) to roll out a formal product exclusion request process by March 17, 2019 for the List 3 Chinese-origin goods that are subject to Section 301 tariffs. The USTR previously stated that it would not implement an exclusion process for the List 3 goods until the 10% tariffs are increased to 25%.

By way of background, in September 2018, the United States imposed 10% tariffs on a third group of Chinese-origin products valued at $200 billion covering over 6,000 HTSUS classifications. The 10% tariffs were intended to be increased to 25% on January 1, 2019; however, the President ordered the tariffs to remain at 10% for a period of 90 days while the United States and China continued their negotiations to resolve issues relating to China’s forced technology transfers, IPR protection, non-tariff barriers to trade, cyber intrusions, cyber theft, services and agricultural products. If the two countries are unable to reach an agreement, the 10% tariffs will be raised to 25%. Currently, the increase in tariffs is expected to take place on March 2, 2019 as it does not now appear likely that the U.S. and China will reach a significant agreement.

The spending package requires the USTR to establish a List 3 product exclusion process following the same procedures as those applied to the List 1 and List 2 goods by March 17, 2019. It also requires the USTR to report on the status of the exclusion process rollout to the Appropriations, Ways and Means, and Finance Committees within 30 days of the signing of the spending bill.

Under the List 1 and List 2 exclusion processes, U.S. importers were allowed to seek product exclusions by submitting the USTR-created form electronically via the www.regulations.gov website. However, there were strict deadlines for submitting requests: interested parties had only 90 days from the date the tariffs entered into effect to submit their exclusion requests to the USTR. Once the requests were received by the USTR, they were posted to the www.regulations.gov website, and other interested parties then had 14 days to submit any objections. Then, any replies to those responses were required to be submitted seven (7) days after the close of the 14-day period. If exclusion requests are approved, they will be retroactive to the date that the tariffs were first imposed. In addition, approved exclusions will be valid for a period of one year following the publication of the exclusion decision by the USTR. And, any approved Section 301 exclusions will apply to ALL importers of the subject product regardless of whether the importer was the party who requested the exclusion or not.  

With respect to exclusions approved to date, the USTR published in late December 2018 the first group of approved exclusions involving 31 List 1 products that were the subject of 984 product exclusion requests. Over 10,000 exclusion requests were filed, and roughly 1,200 were denied by the USTR. Another 8,500 requests are still pending before the USTR. The 31 products covered by the approved exclusions all had some important things in common, namely: (a) the items could not be obtained from sources outside China; (b) arguments were made that the tariffs would economically harm the requestor or other US companies; and, (c) there products were not sensitive or did not involve the product sectors targeted by the “Made in China 2025” initiative. We anticipate that it will take several more months for the USTR to finish its review of the remaining List 1 and List 2 exclusions that are currently pending disposition, and there is no indication that the USTR intends to prioritize any List 3 exclusion requests ahead of those requests that have already been filed.

Accordingly, U.S. importers are urged to identify List 3 products for which they would like to submit exclusion requests and begin the process of gathering the necessary information for preparing and submitting the exclusions to the USTR as soon as the process has been rolled out. In addition, as the Section 301 environment continues to be very fluid. U.S. companies should continue to stay up-to-date on all proposed changes and developments so that strategies can be planned well in advance of the proposals’ formal implementation into law and regulation.

If you have any questions pertaining to the Section 301 tariffs or other international trade issues, please contact Melissa Proctor (melissa@millerproctorlaw.com) or Peggy Chaplin Louie (peggy@millerproctorlaw.com) at Miller Proctor Law PLLC (https:www.millerproctorlaw.com).