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US imposes first set of tariffs on China origin products; publishes list of $34 billion in goods subject to additional 25% duty effective 6 July 2018

Executive summary

On 15 June 2018, the President of the United States (US) announced that the US will move forward and implement a 25% tariff on US$34 billion1 of goods from China that contain industrially significant technologies.2 The actions follow a determination by the United States Trade Representative (USTR) on 22 March 2018 that the acts, policies, and practices of China to forcefully acquire US intellectual property are unreasonable, discriminatory and burden US commerce, costing the US approximately $50 billion per year.3

Following the President’s statement, the USTR issued a press release and published two lists of US tariff lines subject to the additional duties covering 1,102 product lines and approximately $50 billion worth of imports in total from China. The two lists created by the interagency Section 301 Committee target products that benefit from Chinese industrial policies, including the “Made in China 2025” policy such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles, while generally avoiding consumer goods such as cellular telephones, footwear and apparel.4

The first set of products (15 June final list) contains 818 tariff lines covering approximately $34 billion worth of imports from China and is a sub-set of the USTR’s initial list of products published on 3 April 2018.5 Customs and Border Protection (CBP) will begin to collect the additional duties on the 818 tariff lines on imports starting 6 July 2018. The refined list follows deliberation by the interagency Section 301 Committee on the USTR’s initial set of 1,333 products after the collection of public comments from nearly 3,200 interested persons and a three-day public hearing conducted from 15-17 May.6

The second set of products (15 June proposed list) contains 284 proposed tariff lines covering approximately $16 billion worth of imports from China.7 These tariff lines will be subject to a public notice and comment period including a public hearing scheduled for 24 July 2018 and further deliberation by the interagency Section 301 Committee before a final determination is made as to whether additional duties will be levied on the products listed. The deadline for submitting comments is 20 July 2018, while the deadline for filing requests to appear at the public hearing is 29 June 2018. Post-hearing rebuttal comments are due on 31 July 2018.

For companies impacted by the products listed, the USTR will provide an opportunity to request exclusions of particular products from the additional duties. While details regarding the process have not been published yet, the USTR announced it will issue a Federal Register notice within the next few weeks explaining the exclusion request process.

Detailed discussion

Revisions to the original proposed list of products and proposed additions

The USTR’s 15 June final list removes 515 tariff lines which previously appeared on the USTR’s original 3 April 2018 proposed list of products. Notably, all tariff lines falling within the following Chapters of the Harmonized Tariff Schedule of the United States (HTSUS) which appeared on the 3 April list are removed from the final list:

Tariff Chapter
Tariff Chapter Description

29

Organic chemicals

30

Pharmaceutical products

38

Miscellaneous chemical products

72

Iron and steel

73

Articles of iron or steel

76

Aluminum and articles thereof

83

Miscellaneous articles of base metal

91

Clocks and watches and parts thereof

93

Arms and ammunition; parts and accessories thereof

94

Furniture…prefabricated buildings

Nonetheless it is worth noting that some new proposed tariff lines from HTSUS Chapters 38 (chemical products), 73 (articles of iron and steel), 76 (aluminum and articles thereof), 84 (machinery and mechanical appliances) and 85 (electrical machinery and equipment) appear on the 15 June proposed list of products.

The final list includes tariff lines under HTSUS Chapters 28, 40, 84, 85, 86, 87, 88, 89, and 90.

Tariff Chapter
Tariff Chapter Description
No. of Tariff Lines in 3 April List
No. of Tariff Lines Excluded on Final List
No. Tariff Lines Remaining on Final List

28

Inorganic chemicals; organic or inorganic compounds of precious metals…

4

3

1

40

Rubber and articles thereof

8

6

2

84

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

537

120

417

85

Electrical machinery and equipment and parts thereof…

241

55

186

86

Railway or tramway locomotives…

17

0

17

87

Vehicles other than railway or tramway rolling stock, and parts and accessories thereof

48

7

41

88

Aircraft, spacecraft, and parts thereof

16

1

15

89

Ships, boats and floating structures

11

1

10

90

Optical…measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof

164

35

129

Grand Totals
515
818

The USTR’s 15 June proposed list of products is comprised of 284 tariff lines not previously included on the USTR’s 3 April list and spans 13 HTSUS Chapters, with the majority falling in Chapter 39 (plastics and articles thereof), followed by Chapters 84 (machinery and mechanical appliances) and 85 (electrical machinery and equipment).

Tariff Chapter
Tariff Chapter Description

27

Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

34

Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modeling pastes, “dental waxes” and dental preparations with a basis of plaster

38

Miscellaneous chemical products

39

Plastics and articles thereof

70

Glass and glassware

73

Articles of iron or steel

76

Aluminum and articles thereof

84

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

85

Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

86

Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signaling equipment of all kinds

87

Vehicles other than railway or tramway rolling stock, and parts and accessories thereof

89

Ships, boats and floating structures

90

Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof

Articles of plastic proposed from Chapter 39 span 19 headings, including headings 3901 through 3921 with the exceptions of heading 3915 (waste, parings and scrap, of plastics) and heading 3918 (certain floor and ceiling coverings of plastics). Plastics such as tubes, pipes and hoses (heading 3917), certain plates, sheets, film, foil and strip (headings 3919 through 3921) are included in the proposed list. Notable products on the proposed list include lubricating oils, greases, preparations and certain related additives from Chapters 27, 34 and 38; semiconductor manufacturing equipment from Chapter 84; engines, motors and generators from Chapters 84, 85 and 87; certain electronics and electronic parts/components including integrated circuits from Chapter 85; as well as various vehicles, tractors and vessels from Chapters 84, 86, 87 and 89.

Retaliation and US response

The Spokesman for China’s Ministry of Commerce condemned the US actions shortly after the White House and USTR announcements, stating that China “will immediately introduce taxation measures of the same scale and the same strength” and that “[a]ll the economic and trade achievements previously reached by the two parties will be invalid at the same time.” While not referencing a specific list of tariff lines, a proposed list of items was previously published by China on 4 April 2018 in response to the USTR’s publication of the proposed list of items the day before. The list covers 106 items with a trade value of $50 billion of US imports, including soybeans, automobiles, chemicals and aircrafts. While an implementation date has not been published, additional duties on US imports into China are expected to take effect on or around 6 July 2018, which is the day that the US will implement additional duties on its final list of products covering $34 billion worth of imports.

Tensions between the two nations continue to rise as the President’s 15 June announcement states “[t]he United States will pursue additional tariffs if China engages in retaliatory measures, such as imposing new tariffs on United States goods, services, or agricultural products; raising non-tariff barriers; or taking punitive actions against American exporters or American companies operating in China.” On 5 April 2018, the US President stated that the US may target an additional $100 billion worth of imports from China.

Actions for Businesses

Since the final list of tariff lines subject to additional US tariffs has changed from the 3 April proposed list, importers should review their products imported from China to confirm whether they are impacted by the final list. Those who may be negatively impacted by the additional duties, including manufacturers, distributors and consumers, should map their complete, end-to-end supply chain to fully understand the extent of products impacted, potential costs, alternative sourcing options, and to assess any opportunities to mitigate impact. Similarly, they should continue to monitor US actions as announcements concerning the product exclusion request process will be announced over the next few weeks. Companies exporting US goods to China, as well as China companies who rely on imported US goods, should also monitor retaliatory actions from China which would likely take effect on or around the implementation date of US tariffs.

Companies involved in US/China trade are encouraged to identify the potential impact of additional duties and develop duty avoidance or mitigation strategies. Immediate actions for such companies could include:

  • Mapping their complete, end-to-end supply chain to fully understand the extent of products impacted, potential costs, alternative sourcing options, and to assess any opportunities to mitigate impact.
  • Identifying strategies to defer, eliminate, or recover the excess duties such as bonded warehouses, Foreign Trade Zones, or substitution drawback and their equivalent under China customs regulations.
  • Exploring strategies to minimize the customs value of imported products subject to the additional duties, re-evaluating current transfer pricing approaches, and for US imports, considering US customs strategies, such as First Sale for Export.

Considering the White House statement on 29 May 2018 announcing its intention to implement investment restrictions and enhanced export controls applicable to Chinese persons and entities by 30 June 2018, companies should also understand their existing screening processes and systems, including whether they can be quickly adjusted to address the stricter rules.8

Endnotes

1. Currency references in this Alert are to CA$.

2. “Statement by the United States President Regarding Trade with China,” 15 June 2018. See https://www.whitehouse.gov/briefings-statements/statement-president-regarding-trade-china/?utm_source=link.

3. USTR Section 301 Report, 22 March 2018. See https://ustr.gov/sites/default/files/Section 301 FINAL.PDF.

4. “USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices,” 15 June 2018. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/june/ustr-issues-tariffs-chinese-products.

5. https://ustr.gov/sites/default/files/enforcement/301Investigations/List 1.pdf.

6. Public comments and transcripts from the hearing are available on www.regulations.gov, Docket No. USTR-2018-0005, “Notice of Determination and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,” 3 April 2018.

7. https://ustr.gov/sites/default/files/enforcement/301Investigations/List 2.pdf.

8. “Statement on Steps to Protect Domestic Technology and Intellectual Property from China’s Discriminatory and Burdensome Trade Practices,” 29 May 2018. See https://www.whitehouse.gov/briefings-statements/statement-steps-protect-domestic-technology-intellectual-property-chinas-discriminatory-burdensome-trade-practices/.

EYG no. 03201-181Gbl

Download this Tax Alert as a PDF file.

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