Section 301 Update: No List 3 Exclusion Process for Now; Expect Delays on List 1 and 2 Exclusion Reviews

Additionally, due to the ongoing Federal Government shutdown, further delays are anticipated with the review of exclusion requests relating to Section 301 List 1 and Section 301 List 2.

No List 3 Exclusion Request Process

Section 301 List 3 covers $200 billion worth of Chinese goods and 5,745 product lines defined at the eight-digit level of the Harmonized Tariff Scheduled of the United States.  The tariff rate applicable to List 3 has been set at 10 percent through March 1, 2019, but will increase to 25 percent on March 2, 2019, pending ongoing discussions with China.  Please see our prior alert for additional information on List 3.

Although there is an exclusion request process for products on List 1 and  List 2, both of which provide for 25 percent duties on certain designated imports from China, no exclusion request process has been announced for products on List 3. Moreover, it appears that no exclusion request process will be created, at least while the duty rate remains at 10 percent.  USTR Robert Lighthizer specifically indicated this intention via a letter to Senator Tim Kaine on January 11, 2019, stating that a List 3 exclusion request process will only be created if ongoing talks with China fail and the duty is raised from 10 percent to 25 percent on March 2, 2019.

Officials from the U.S. and China met in Beijing on January 7-9, 2019 to hold their first talks since agreeing to the 90 day negotiations in December 2018. Though negotiations were extended an extra day, there have been few details released on any progress made. The USTR issued a statement indicating that the talks focused on the Trump administration’s longstanding efforts to “achieve fairness, reciprocity, and balance in trade relations,” including “China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the United States.” Further talks are scheduled for the end of January 2019 in Washington, DC. However, it remains unclear how much progress President Trump would want to see to stop him from raising the tariffs to 25 percent.

Please see our previous alert for additional information on the List 1 exclusion process List 2 exclusion process.

Additional Delays for Reviews of List 1 and List 2 Exclusion Requests

The deadline for submitting List 1 exclusion requests with the USTR was October 9, 2018, and the deadline for submitting List 2 exclusion requests with the USTR was December 18, 2018.  The List 1 and List 2 exclusion requests are now being reviewed pursuant to the following stages:

• Pre-Posting Stage: Format review to ensure that the request conforms with the instructions provided in Product Exclusion Notice, including whether the request includes all required information.         
• Stage 1: Public comment period, where interested persons will have 14 days from the date a request is posted on regulations.gov to respond to the request. The requester will then have 7 days to reply to any response submitted.
• Stage 2: Initial substantive review conducted by the USTR to determine whether the exclusion request should be granted based on the substantive criteria set out in the Product Exclusion Notice.       
• Stage 3: Administrability review based on consultations with U.S. Customs and Border Protection (“CBP”) to determine whether an exclusion would be administrable.            
• Stage 4: Publication in process for granted exclusion requests in the Federal Register.

However, because the CBP personnel participating in the Stage 3 review have been furloughed, exclusion requests have not moved past Stage 3 since the shutdown began at midnight EST on Saturday, December 22, 2018.  Moreover, the USTR confirmed that approximately 70 percent of its staff was furloughed as of Monday, January 14, 2019 due a lapse in its appropriations for 2019. As a result, the USTR is only able to continue reviewing exclusion requests “to the extent possible” until the Federal Government reopens. The USTR will nonetheless continue to operate the Section 301 Hotline to answer questions regarding the Section 301 exclusion process and to release the Index of Product Exclusion Requests and Review Status on a weekly basis.

On January 17, 2019, regulations.gov, the Federal rulemaking site where parties comment on Section 301 exclusion requests, became unavailable. Despite initial reports attributing the outage to the Federal Government shutdown, the Environmental Protection Agency, which runs the site, has since clarified that the issue has been caused by a technical glitch. Depending on the duration of the outage, the notice and comment period for Section 301 exclusion requests in Stage 1 may be tolled to account for the interruption.

Given the scrutiny CBP is applying when it believes there may be Section 301 tariff evasion by misclassification, misdeclaring origin, or undervaluing merchandise to pay a lower duty, we are urging the business community to review their internal trade compliance procedures and seek expert advice with any questions or concerns.

Arent Fox has developed a program to assist importers in navigating the List 1, List 2, and List 3 tariffs.  If you would like more information on this program or on how you can minimize the impact of the Section 301 tariffs on Chinese imports, please contact any Arent Fox trade group member listed below.