Effective May 10, 2019, President Trump announced that retaliatory tariffs against $200 billion worth of Chinese exports, imposed under authority of Section 301 of the Trade Act of 1974, would be increased from 10 percent to 25 percent ad valorem. Coupled with the announcement of the duty increase for goods in this “Third tranche” of China retaliatory tariffs was news that the United States Trade Representative will implement a process to allow interested parties to petition to have particular goods excluded from the scope of these tariffs.
USTR received thousands of exclusion requests for the $50 billion worth of Chinese products covered in the first two tranches of Section 301 retaliation, and to date has issued four sets of product exclusions. Experience with the exclusion process to date provides some hints of what an interested party should do to craft a request which has a better chance of being approved.
No Downside Risk
There are no downside risks to filing an application to have a product exempted from the Section 301 retaliatory tariffs. The worst that can happen is that the application is denied, leaving the requestor no better, but certainly no worse off, than before the application was submitted.
Where exclusions are granted, the benefits are substantial. Past exclusions have been retroactive to the day Section 301 tariffs were applied, providing the recipients with a basis to seek a refund of duties on past entries. The exclusions are also good for one year from the date they are issued. This can be helpful, particularly in cases where it will take time for a United States importer or purchaser to shift its foreign production, or to qualify a new supplier.
This combination of low risk and potentially very great reward explains why so many exclusion requests have been filed to date.
Describing the Product: “Administrability”
The first rule of a successful exclusion request is that it should provide a clear and precise description of the product for which an exclusion is sought. This description must not only be sufficient to advise USTR exactly what is covered by the exclusion request, but should allow Customs officials to readily administer the exclusion, if it is granted.
While the requester must provide the eight-digit tariff classification under which its product is classified, USTR generally does not grant exemptions on a “tariff item” basis.
Think small. Provide a complete description of the product to be exempted, including its dimensions, characteristics and where relevant, the materials of which it is composed. If you seek an exemption for all electrothermic ranges and ovens of HTS subheading 8516.60.40, for example, your chances of success are low. On the other hand, if you seek an exemption for an oven having a stated dimension and specific features (timers, temperature probes, etc.), your chances of success improve.
“Administrability” means that your requested exclusion is sufficiently clear that if an exclusion were granted, a Customs official, examining invoices and other entry documents would be able to determine whether the product is described by the exclusion. USTR will not grant exclusions on the basis of the identity of the manufacturer, or of the United States importer.
Address the Basics
While USTR provides an application form, the agency has indicated that it is interested in three major questions to be considered in addressing exclusion requests:
1. Is the product in question readily available from a domestic supplier or from a supplier in a country other than China?
2. Will the requester suffer significant financial injury if the request is not granted?
3. Is the product concerned of a kind involved in the “Made In China 2025” initiative or other Chinese government programs?
Applications should address each of these issues.
Applicants are allowed to upload additional documentation in support of their claim. This is generally a good idea for any application, and an applicant should take care to address the three questions USTR seeks information on asked. In many cases, a particular product (especially an engineered good) is not available from any place other than China, or could not, as a practical matter, be obtained from a different source for some time. In some cases, paying the 25% tariff will have a serious economic impact on the requester. If, for example, the requestor has already committed to resell the product to customers in the United States at a certain price which cannot be altered, and the twenty-five percent tariff will eliminate the requester’s profit or place it in a loss position, this should be explained to USTR in as much detail as possible. These tariffs are a political exercise, and support for them could erode if, for example, they cause numerous American small businesses to fail.
Additional Factors – Make Your Petition Stand Out
Apart from the three factors that USTR asks to be addressed, there may be other factors that can be used to distinguish your application and add to its importance or attractiveness.
For example, if the product that you are seeking an exclusion for promotes important goals like child safety and health, this should be noted. If it promotes environmentally sound conditions, this is also a factor which might result in favorable consideration of a petition.
Similarly, if the product is essential to supporting national defense, important national infrastructure, or other significant United States economic and policy priorities, this should be pointed out, in an attachment to the submission, in sufficient detail to let the USTR officials who process these petitions understand why your petition has merit, and how the exclusion can be justified.
It is impossible to predict the chances that a particular exclusion request will find favor with USTR. However, there are ways to make the case so that the odds in your favor are improved. Contact one of our attorneys if you have questions regarding the process or require assistance in preparing an exclusion petition.