This is part two in what will no doubt be a continuing and long running series on what American companies can and should be doing in light of the ongoing trade war between the United States and China. In part 1, I discussed how our China lawyers are getting a slew of phone calls and emails from companies looking at massive tariffs being imposed on their products imported into the United States and wondering what they should do.
That first post focused on what companies facing tariff problems should NOT do:
They should not have their China products shipped to Taiwan or to Malaysia or to Thailand or Vietnam or anywhere else and then have those products shipped to the United States as though they are not from China. Doing this sort of transshipping can and does lead to massive fines and to JAIL TIME. I am not kidding. I am starting out with a post on what not to do because the risks from this one thing far exceed the benefits of the things we will be discussing in our subsequent posts.
And yet, many are telling us that their Chinese factories are suggesting these exact sort of transshipments and giving assurances that they are legal or that nobody ever gets caught, neither of which are remotely true. Step back for just a second and ask yourself why you are even considering taking legal advice about United States customs law from a Chinese factory owner or salesperson who has all the incentive in the world to sell you Chinese products and very little incentive to keep you out of jail. Please, please, please don’t fall for that. Please.
But what should you do? The below is the sort of plan our international trade lawyers (working in tandem with our China lawyers) are mapping out for companies needing our help:
The first and most obvious thing to do is to figure out how your products will be impacted. Has the United States imposed tariffs on your products? Is it planning to do so? Just this first step is more complicated than many realize both because it is not always clear whether a specific product comes within the classification of a product against which tariffs have been imposed and because the media has been less than clear in distinguishing between existing and upcoming tariffs.
If one of your products is on a U.S. tariff list, your next step is to figure out what you can do about that. Surprisingly enough, you do have options. The U.S. Trade Representative will accept comments until September 6 on whether entire categories of products listed on the third wave of proposed tariffs — the $200 billion in imports from China — should be exempted. And later waves of U.S. tariffs will have later dates by which comments must be made. Out of the first round of $50 billion in tariffs, comments led to the removal of $16 billion (32 percent), which shows there is real value to challenging these tariffs.
But even if your product is not exempted due to challenges, you can make what is called an exclusion request. These too have their deadline dates and these exclusion requests typically include the following:
- Identify the product you want excluded. The U.S. list of targeted products is identified by the Harmonized Tariff Schedule (HTS) number that is used to declare the product when imported into the United States. A company needs to identify the commercial name of the product, the HTS number for the product, and any other industry designation of the product under a recognized standard or certification (for example: ASTM, DIN).
- A description of the product based on physical characteristics (for example: chemical composition, metallurgical properties, dimensions) so your product can be distinguished from other products that would still be covered by the tariffs. A significant concern in considering exclusion requests is whether granting a specific exclusion request will create a loophole many other products can also use.
- The basis for requesting an exclusion. Is the product unavailable from a domestic U.S. supplier and thus imports are needed to fill a demand no U.S. supplier can fill. Are there certain qualification requirements only the import supplier can satisfy? Have you been put on allocation by domestic suppliers? Are there alternative suppliers in any country other than China?
- The names and locations of any producers of the product in the United States and in foreign countries.
- Total U.S. consumption of the product by quantity and value for each year for the past three to five years (2013 – 2017) and projected annual consumption for the next few years (2018- 2020), with an explanation of the basis for the projection.
- Total U.S. production of the product (or possible substitutes) for each of the past three to five years.
- Discussion of why the U.S. products (or substitute products) cannot be used in place of the imported products.
- A good story why your company deserves the exclusion it is requesting. This typically includes the history of your company (e.g., fifth generation family-owned), the products produced by your company, the strategic significance of your company’s products, the number of workers in your company, and your company’s annual sales.
The difference between the comment process and the exclusion process is that successful comments lead to the removal of tariff line items from the list whereas successful exclusion challenges remove specific products from the tariff item. In other words, the requirements for the exclusion process are much more product specific; if you have six different types of widgets, you will have to make six different product exclusion requests.
The first deadline for a product exclusion list is October 9th for the first $34 billion list. USTR has not yet set up Product Exclusion requests for the $16 billion, not to mention the $200 billion list. So we are still waiting on that.
There have already been many opposing comments and exclusion requests submitted for the first two waves of proposed China tariffs. Many of the opposing comments have noted how the proposed tariffs on the Chinese products have nothing to do with Chinese practices of stealing or extorting intellectual property from U.S companies, which are the reasons claimed for invoking the China tariffs in the first place. Many have also objected to how these tariffs are not likely to change how China respects intellectual property rights, but will have a catastrophic effect on certain American companies.
A U.S. exclusion process will likely proceed fairly slowly because there are so many exclusion requests already in the pipeline for the steel and aluminum tariffs, though a successful exclusion request likely will result in a refund of any tariffs paid. Waiting for a tariff refund is not the best thing in the world, but requesting such a refund will be the best path for many. Our trade lawyers are representing companies in more than a dozen industries that are seeking to have their products excluded from tariffs.
In part 3, we will discuss what actually makes a product “Made in China” for purposes of United States tariffs and what you can legally do to take your products outside that classification.