On June 24, the Office of the US Trade Representative (USTR) published a Federal Register notice outlining the process by which US stakeholders may request product-specific exclusions for the third tranche of Chinese products subject to an additional duty of 25% ad valorem, pursuant to Section 301 of the Trade Act of 1974 (“List 3”). As discussed in our prior alerts, an initial 10% ad valorem duty on List 3—covering 5,745 tariff lines totaling approximately $200 billion in imports—took effect on September 24, 2018. USTR subsequently increased the duty to 25% percent ad valorem, with an effective date of May 10, 2019, following the early May breakdown in negotiations between the two sides.
As the USTR Federal Register notice explains, USTR has created an electronic portal for the submission of exclusion requests. The portal will go live on June 30, and the window for filing exclusion requests will remain open until September 30. USTR also substantially revised the form that submitters must use in their List 3 product exclusion requests.
Similar to the previous form, each request must specifically identify a particular product and provide supporting data and the rationale for the requested exclusion. With regard to product identification, exclusion requests must include the following information:
- The 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion. Different models classified under different 8-digit or 10-digit HTSUS subheadings are considered different products and require separate exclusion requests.
- The product name and a detailed description of the product. Per instructions from USTR, the detailed description of the product should include a description of its physical characteristics (e.g., dimensions, weight, material composition).
- The product’s function, application (i.e., whether the product is designed to function in, or with, a particular machine or other device), principal use, and any unique physical features that distinguish it from other products covered under the same 8-digit HTSUS subheading.
USTR clarified in the Federal Register notice that requesters may submit a single product exclusion request that covers a “range” of “comparable goods,” meaning goods that have similar product characteristics or attributes. USTR also encourages requestors to provide supporting documentation to help distinguish the product from other products covered under the same 8-digit HTSUS subheading (e.g., CBP rulings, photos and specification sheets, and previous import documentation).
With regard to the rationale for the requested exclusion, each request must explain:
- Whether the product is available only from China or whether the product (or a comparable product) is available from sources in the United States and/or third countries;
- Whether the requestor has attempted to source the product from the United States or third countries;
- Whether the imposition of additional duties on the particular product has caused or will cause severe economic harm to the requestor or other US interests; and
- Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
In addition to the above, the List 3 exclusion request form requires requestors to provide a range of new information that USTR did not seek in the List 1 and 2 exclusion processes, including:
- Specific annual import quantity and value data for the Chinese-origin product, domestic product, and third-country product that the requestor purchased in 2017, 2018, and the first quarter of 2019;
- Information regarding the requestor’s gross revenues in USD for 2018, the first quarter of 2018, and the first quarter of 2019;
- For imports sold as final products, the percentage of the requestor’s total US gross sales in 2018 that the Chinese-origin product accounted for;
- For imports used in the production of final products in the United States, the percentage of the total cost of production that the Chinese-origin product accounts for and the percentage of the requestor’s total US gross sales in 2018 that the final product(s) accounted for;
- Information regarding any exclusion requests filed in the List 1 and List 2 processes, including the total value of the requestor’s imports subject to the Section 301 duties for which the requestor submitted such requests.
USTR has stated that it expects to receive as many as 60,000 product exclusion requests for List 3—a significant increase from the volumes in the List 1 and 2 exclusion processes. As stated in the USTR Federal Register notice, USTR will evaluate each request on a case-by-case basis, taking into account the asserted rationale for the requested exclusion, whether the exclusion would undermine the objective of the Section 301 investigation, and whether the request defines the product with sufficient precision. Given USTR’s more detailed information requests and the large volume of requests expected, we anticipate that once a request is filed, it may take some time before USTR issues a decision on the request.
Any exclusions granted will be effective for a period of one year, starting from the date the exclusions are published in the Federal Register, and will apply retroactively to September 24, 2018.
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Procedures for Requests to Exclude Particular Products from the September 2018 Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 29576 (USTR June 24, 2019).
