As 2020 begins, U.S. tariff policy toward China and the European Union (EU) is moving in different directions, with significant implications for U.S. companies. Beginning with China, the U.S. has gradually implemented tariffs on four “lists” of Chinese goods since July 2018.^[1] But on December 13, 2019, the two countries announced a Phase One agreement that partially resolves their trade dispute. Although the Phase One agreement itself—which covers intellectual property, technology transfer, trade in certain products, macroeconomic policy and financial services—does not reduce U.S. tariff rates, the U.S. canceled a new set of tariffs on $160 billion in Chinese goods that would have taken effect on December 15, 2019. With regard to existing tariffs, the United States Trade Representative (USTR) stated that “[t]he United States will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.” Although most tariffs are still in place and obstacles to reaching a more comprehensive agreement remain, trade relations between the U.S. and China appear to be improving.

The opposite is true with regard to the EU. In October 2019, the USTR implemented a wave of new tariffs on approximately $7.5 billion dollars in imports from the EU in response to the World Trade Organization’s (WTO) ruling in the Airbus subsidies case. In that case, the WTO ruled that the EU had been providing illegal subsidies to Airbus, causing Boeing to lose sales and market share. The tariffs target certain categories of goods, including large civil aircraft, dairy, meat and seafood, alcohol, and textiles, among others. Large civil aircraft are subject to a 10 percent tariff increase, while other products are subject to a 25 percent tariff increase. A full list of the categories of goods subject to the new tariffs can be found here. Thus far, the U.S.-EU trade dispute shows no signs of abating, with the U.S. now considering duties of up to 100 percent on certain EU products.

In light of these changes in U.S. tariff policy, the first question for companies that import goods from China or the EU is whether their goods are affected by the new tariff rates. To answer this question, companies can consult the Harmonized Tariff Schedule (HTS). If goods are subject to an increased tariff rate, companies may want to determine whether they can reclassify their goods under an HTS classification that is not subject to the increased rate. Companies interested in reclassifying their goods can seek a formal classification determination from U.S. Customs and Border Protection.

If reclassifying goods is not possible, companies may want to consider seeking exclusions from the tariffs. The USTR has not indicated whether it will permit exclusions for EU products. However, the USTR has granted a number of exclusions for each list of Chinese goods subject to the tariffs. Companies can no longer seek new exclusions from tariff lists 1–3, but may seek exclusions from list 4 tariffs until January 31, 2020. To determine whether an existing exclusion applies or whether to seek a new exclusion, companies should consult a legal professional.

Companies that are unable to avoid tariffs through reclassifications or exclusions may want to consider alternative ways to mitigate the risks and costs associated with these two trade disputes. One option is to shift supply chains away from countries impacted by these disputes. Another is to revise shipping terms to permanently shift the increased tariffs to Chinese or EU manufacturers. This generally involves a revision to a new INCOTERM 2010 term that requires the foreign manufacturer to bear all shipping costs, including freight, insurance, and export and import duties. For a full array of the options available to manage the risks associated with current trade disputes, companies should consult a legal professional.

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Note:
[1] Brett W. Johnson & Derek Flint, Understanding the 2018 U.S. Tariffs on Chinese Goods: Developing a Game Plan, SNELL & WILMER (Oct. 15, 2018), https://www.jdsupra.com/post/documentViewer.aspx?fid=6F02F8CA-9333-4EB5-8552-A6C0A497F7F5.