Update on China Section 301 Tariffs
September 21, 2018 

On Sept. 17, as part of the United States' continuing response to China's theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs. In accordance with the direction of President Trump, the additional tariffs will be effective starting Sept. 24, and initially will be in the amount of 10 percent. Starting Jan. 1, 2019, the level of the additional tariffs will increase to 25 percent.

The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10. Changes to the proposed list were made after USTR and the interagency Section 301 Committee sought and received comments during a six-week period and testimony during a six-day public hearing in August. The Office of USTR believes it engaged in a thorough process to rigorously examine the comments and testimony and, as a result, determined to fully or partially remove 297 tariff lines from the original proposed list.

Agathon Associates is aware that there is considerable confusion and concern over this action.

Question: What is on the final list?

Answer:Click Here for the official list.


Question: What lines were removed?

Answer: USTR has made the following general statement: "Included among the products removed from the proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens."


Question: An article I import from China is on the list? What can I do?

Answer: Unless you can quickly change your sourcing, or defer imports, you should prepare to start paying an additional 10 percent duty starting on Sept. 24. It will likely be temporary, but no one knows how long it will be in effect or whether it will continue with a 25-percent rate starting on Jan. 1.


Question: Is there any chance it may not go into effect?

Answer: Yes, it is widely understood that the president is taking actions against China to bring China to the negotiation table and get a better trading arrangement for the United States. It is possible that he could accomplish that before the tariffs go into effect. It is also possible that a deal could be made within a few weeks, limiting the duration of the harm. It is also possible that a court may delay it.


Question: Is this even legal? All these lists suddenly released looks like he's making it up as he goes along, rather than following regulatory procedures.

Answer: Good point. The Consumer Technology Association has filed comments challenging the legality of List 3 (see the history below if you want to clarify the three lists). CTA contends that the administration did not have the authority to impose new tariffs - beyond the two lists of tariffs already in effect - without initiating a new investigation.

"Section 301 does not authorize the additional $200 billion in List 3 tariffs, for at least two reasons," the submission states. "First, the announcement of the List 3 tariffs came well outside the 30-day limit imposed by Section 305 of the Trade Act. Second, the List 3 tariffs were based on impermissible reasons post-dating the Section 301 investigation - namely, 'China's response to the $50 billion action announced in the investigation and its refusal to change its acts, policies and practices,' - rather than on the original Section 301 investigatory findings, as the statute requires."

CTA further argues that Section 307 of the 1974 trade law does not permit the administration to modify remedies indefinitely. "It does not authorize USTR to impose brand new penalties that more than quadruple those imposed following the original investigation," the submission says. "Nor does it offer the administration a blank check to increase tariffs at any time based on events post-dating the initial Section 301 investigation. Such unfettered discretion is inconsistent with the fact-based determination required by Section 301."

Another consideration is the timing. Just 12 days after the close of the Sept. 6, comment period, and just two days after the transcript of the hearing was made available on regulations.com, USTR announced the final list. There is no way that government bureaucrats had time to fully analyze more than 6,000 comments and testimony from more than 300 witnesses in such a short time. One can argue that once you acknowledge that the proposed action requires consideration of public comments, you cannot then move ahead without even reading those comments.

Would a legal challenge based on the assertions above be successful? It may not be necessary to prevail, merely finding one judge to stay the action pending a full court hearing would, at least for a considerable time, stop the tariffs.


Question: What about filing for an exclusion by the Oct. 9, deadline?

Answer: As of now there is no provision for filling for an exclusion from List 3 tariffs. The Oct. 9 deadline refers to List 1. If List 3 tariffs are imposed it is generally expected that an opportunity to file for exclusion will be announced when they go into effect or shortly after. However, the extremely high volume of exclusion requests expected will put a tremendous strain on the government to process them, with the result that they may take more than the 90 days they are supposed to take to complete.


Question: What about duty suspensions under the Miscellaneous Tariff Bill?

Answer: If you successfully filed for a temporary duty suspension under the recently enacted MTB, those duty suspensions will go into effect as scheduled, 30 days from enactment. So if you currently pay duty on an article from China and it's on the MTB list, you will avoid the general duty. However, if the Section 301 duties go into effect you cannot avoid them. They are in addition to the general rate and unaffected by the MTB.


Question: Can I use a Foreign-Trade Zone to avoid 301 duties?

Answer: Possibly. If you use inputs subject to 301 duties and subsequently export those articles, either in the same condition, or after manufacturing, you can avoid 301 duties on exports using FTZ procedures. FTZ procedures will also avoid 301 duties on materials that become waste.

Click Here to read the full blog post.

Source: David Trumbull, Agathon Associates