The US Trade Representative (USTR) issued a press release on July 6, 2018 that includes details on the process for seeking product-based exclusions from the additional duties being imposed on Chinese-origin articles under Section 301 (the first round of those duties went into effect earlier on July 6). An advance copy of the Federal Register notice containing the specifics for this process is attached for your reference.
In summary, the product-based exclusion process is as follows:
- all requests to exclude a particular product must be filed by October 9, 2018 (90 days from July 6);
- there is an opportunity to file comments on such requests, and then for the requester to respond;
- if an exclusion request is granted, it will be effective back to July 6, 2018 (the effective date of this round of additional duties) and will be valid for one year from the date the exclusion approval is published in the Federal Register;
- exclusion requests should cover a “particular product” (this is broader than a just a part number and cannot be based on company-specific characteristics);
- exclusion requests may be filed by “interested persons, including trade associations” (which also suggests that the term “particular product” is meant to be interpreted broadly);
- each request must provide the rationale for the exclusion and, at a minimum, address (1) whether the particular product is available only from China, (2) whether the imposition of additional duties on this product will cause “severe economic harm” to the requestor or to other U.S. interests, and (3) whether the particular product is strategically important or related to China’s industrial policies, including “Made in China 2025”; and
- USTR will evaluate each request individually and take into account “whether the exclusion would undermine the objective of the Section 301 investigation”.
In terms of administering any approvals at the border, the notice also states that requestors may provide information on how US Customs and Border Protection can administer the exclusion (i.e., how will CBP be able to differentiate between products covered by the exclusion and products not covered by the exclusion?). Interestingly, the USTR’s press release makes it clear that one need not apply in order to benefit from an approval – i.e., approvals are product-specific, not company-specific (“Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. The U.S. Customs and Border Protection will apply the tariff exclusions based on the product.”).
The good news here is that (i) there is a product exclusion process (which should help address the impact the Section 301 duties are having on U.S. companies), (ii) petitions can be filed on a “product” basis, rather than on a single SKU or part number basis, like with the Section 232 exclusion process, (iii) approvals will be retroactive to when the additional duties first went into effect (although it will be important to keep an eye on liquidation dates to be safe), and (iv) the USTR provided guidance on the factors that will be considered when reviewing requests.
The bad news is that there is no stated timeline for how long it will take the USTR to review and process exclusion requests. Undoubtedly, the USTR is hoping that by broadening the scope of the petitions and the approvals to “particular products” it will result in fewer petitions being filed than have been filed at Commerce in the steel and aluminum Section 232 cases (i.e., more than 20,000 exclusion petitions filed and only 98 acted on in 3+ months = 51 years of processing time . . . .). We believe that hope is misplaced and that the USTR will likely receive thousands of exclusion requests.
Accordingly, it is important that any company impacted by the Section 301 duties, and considering filing a product exclusion petition, do so quickly. We are assisting numerous clients with this process (which began before today) and would be happy to discuss with you how best to approach this effort now that we have these additional details.
We hope this is helpful. If you have any questions, please contact the author, Ted Murphy or any member of the US Customs group with who you normally work.