China Tariff Increase Postponed Indefinitely as Congress Moves Forward on Exclusions

Monday, March 04, 2019

Sandler, Travis & Rosenberg Trade Report

An additional tariff on $200 billion worth of imports from China will remain at 10 percent “until further notice,” according to a notice from the Office of the U.S. Trade Representative expected to be published soon in the Federal Register. However, the delay has not stopped Congress from continuing its pursuit of a process for companies to request exclusions from this tariff.

The tariff on so-called List 3 goods had originally been scheduled to jump to 25 percent on Jan. 1 but the Trump administration pushed that back to March 2 while the U.S. and China held talks on a number of trade irritants. When those talks yielded what the White House called “substantial progress … on important structural issues” such as forced technology transfer, intellectual property rights, currency, and agriculture, a further delay was announced. While no new deadline has been set, it appears the tariff increase will be stayed at least until President Trump meets with Chinese President Xi Jinping later this month to resolve remaining issues.

(In a message to the trade community concerning the most recent delay, U.S. Customs and Border Protection noted that the Section 301 tariffs currently only apply to products of China and are based on the country of origin, not the country of export.)

In the meantime, lawmakers introduced Feb. 27 legislation (S. 577, introduced by Sens. Lankford, R-Okla., and Coons, D-Del.; and H.R. 1452, introduced by Reps. Kind, D-Wis., and Walorski, R-Ind.) that would require the establishment of a process for excluding goods on List 3 and any future lists from the Section 301 tariffs. As with the existing exclusion process for List 1 and List 2 goods, U.S. companies would be able to apply for a refund for duties paid on any List 3 goods granted an exclusion.

According to a press release from Lankford’s office, this bill would also set the specific criteria by which product-wide exclusions must be granted. Specifically, the bill would exempt from tariff imposition those items for which there is no commercial access outside of China, items for which the tariff would increase the cost of living for low- and middle-income families in the U.S., and items that do not directly benefit from China’s non-market-based policies.

Contrary to President Trump’s assertions that China is paying the Section 301 tariffs, Lankford said the burden lies on U.S. importers, who “have paid the U.S. government more than $12 billion in import taxes” since they were imposed in 2018. This “has a direct impact on our economy,” Lankford added, “since those costs are passed down to consumers in the form of price increases on food, clothing, and shelter.”

In addition, Walorski said, “it is clear” that USTR “does not intend to meet the deadline imposed by Congress” to establish an exclusion request process for List 3 goods. Congress gave USTR 30 days to report back on its development of such a process in an explanatory statement accompanying appropriations legislation signed into law Feb. 15. However, according to press sources, Lighthizer suggested in a congressional hearing last week that USTR still only intends to institute such a process if the tariff on List 3 goods is increased to 25 percent.

For more information on the Section 301 tariffs as well as legislative efforts to provide for an exclusion process for List 3 goods, please contact Nicole Bivens Collinson at (202) 730-4956.

© 2019, Sandler, Travis & Rosenberg, P.A. Originally published in the 3/4/19 issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.

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