Tariff Exclusions on Medical Goods Due to COVID-19 Pandemic, the Exclusion Extension Process, and Other US-China Trade DevelopmentsMarch 30, 2020 – Analysis
The United States Trade Representative (USTR) announced a period for public comment on excluding medical goods from Section 301 China tariffs if they are needed to fight the coronavirus pandemic. The USTR notice was published in the Federal Register on March 25, 2020. The USTR previously granted approximately 200 exclusions from Section 301 tariffs for medical goods because they are needed to fight the COVID-19 pandemic.
The U.S.-China Phase One trade agreement formally signed in January has resulted in reduced or suspended tariffs on List 4 products, but Section 301 tariffs on Lists 1, 2, and 3 remain in place, and the exclusion process continues:
- The USTR continues to review List 3 and 4A exclusion requests; and
- The USTR on a rolling basis announces requests for comments about extending exclusions several weeks before the exclusions expire and is granting certain extensions.
1. USTR Establishes Comment Process for Additional Modifications to Section 301 Tariffs to Address COVID-19 Threat
The USTR announced and opened a docket for members of the public, businesses, and government agencies to submit comments if they believe Section 301 tariffs should be removed from medical goods needed to fight the COVID-19 pandemic in the U.S. The notice was published in the Federal Register on March 25, 2020, 85 FR 16987. The U.S. has imposed tariffs on goods imported from China pursuant to Section 301 of the Trade Act of 1974 following the USTR investigation and determination that China’s acts, policies, and practices regarding technology transfer, intellectual property, and innovation were unreasonable and discriminatory, and burdened or restricted U.S. commerce. See the chart below for a summary of Section 301 tariffs imposed to date on goods on Lists 1 to 4.
Comments may be submitted for any product under Lists 1 through 4, regardless of an exclusion request pending before the USTR or being previously denied an exclusion request. The USTR has stated this comment period is intended to supplement and not replace the already existing exclusion request process. The USTR is accepting comments through the exclusions.ustr.gov web portal at docket number USTR-2020-0014. The USTR stated the docket will remain open for comments until June 25, 2020, but that date may be extended as needed. Responses to a comment must be submitted within three days of being posted on the docket.
Comments need to specifically identify a product and explain how it is needed to combat the COVID-19 pandemic. Is the product directly used to treat COVID-19 patients? Is it used to limit the spread of the virus? Is it used in the production of necessary medical care products? Comments are to include the applicable 10-digit Harmonized Tariff Schedule of the United States (HTS) code and a description of the product’s functionality and its physical characteristics, including parameters (i.e., dimensions and material composition). The USTR encourages interested parties to submit comments as quickly as possible, and it will address them on a rolling basis.
This action follows other efforts by the USTR to remove Section 301 tariffs on medical products needed to combat COVID-19. The USTR consulted with the Department of Health and Human Services and prioritized the review of pending List 3 and List 4 exclusion requests relating to medical-care products. The USTR granted approximately 200 separate exclusion requests relating to medical-care products needed to fight COVID-19 in notices issued on March 10, 16, and 17, 2020.
2. List 4 Tariffs Reduced or Suspended, and the USTR Continues Its Review of List 3 and List 4A Exclusion Requests
On Dec. 13, 2019, the USTR announced the United States had reached Phase One of a trade agreement with China. At the direction of President Trump, the USTR proceeded to suspend the 15 percent tariffs on List 4B products set to take effect on Dec. 15, 2019. The USTR notice was published in the Federal Register on Dec. 18, 2019, 84 FR 69447. The U.S. and China officially signed the deal on Jan. 15, 2020. In exchange for China’s commitment to make substantial additional purchases of U.S. goods and services in the coming years, the U.S. agreed to reduce tariffs on List 4A products from 15 percent to 7.5 percent. The USTR announced this tariff reduction in the Federal Register on Jan. 22, 2020, and it took effect on Feb. 14, 2020, 85 FR 3741. Lists 1, 2 and 3 products are subject to 25 percent Section 301 tariffs.
The deadline to submit exclusion requests for the last tariff list of products, List 4A, passed on Jan. 31, 2020, and the USTR continues to review List 4A and List 3 exclusion requests. The first List 4A exclusions the USTR has granted include medical products needed for the U.S. response to COVID-19.
The chart below summarizes the Section 301 tariffs imposed to date.
|Tariff List–Value of Imports from China||Number of Tariff Subheadings on List*||Date Tariff Levied||Tariff||Exclusion Request Deadline|
|List 1 – $34B||818||7/6/2018||25%||10/9/2018|
|List 2 - $16B||279||8/23/2018||25%||12/18/2018|
|List 3 – $200B||5,733||9/24/2018||10%||9/30/2019|
|Lists 4A*||3,805**||9/1/2019 (List A)||
|Lists 4B*||12/15/2019 (List 4B) (postponed)||
|No deadline announced|
Note: A crossed out tariff rate indicates it did not take effect.
3. USTR Considering Extensions for Granted Exclusions on a Rolling Basis
The USTR started the process of considering whether to grant extensions for exclusions in advance of when the first-granted exclusions were to expire. List 1 and List 2 exclusions are effective for one year from when the exclusion was granted. The USTR granted the very first List 1 exclusions on Dec. 28, 2018, and they were set to expire a year later. Two months before expiration, on Oct. 31, 2019, the USTR issued a request for comments concerning the extension of those exclusions, 84 FR 58427. The USTR stated in the notice it would evaluate the possible extension of each exclusion on a case-by-case basis. The evaluation centers on whether the particular product remains available only from China. In addressing this factor, the USTR directed commenters to address specifically:
- Whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries;
- Any changes in the global supply chain since July 2018 with respect to the particular product, or any other relevant industry developments; and
- The efforts, if any, the importers or U.S. purchasers have undertaken since July 2018 to source the product from the United States or third countries.
The USTR will continue to consider severe economic harm to the commenter or other U.S. interests resulting from re-imposing the Section 301 tariff. The Oct. 2018 notice contained templates for commenters to submit public and confidential information, with the USTR strongly encouraging commenters to complete. The comment period ended on Nov. 30, 2019, and on Dec. 23, 2019, the USTR announced six exclusions would be extended, 84 FR 70616. Exclusions not extended expired Dec. 28, 2019.
The USTR has repeated this process as subsequent List 1 exclusions have neared expiration. The evaluation criteria listed above have remained the same, and commenters are encouraged to use the templates for public and confidential information when submitting comments. It is reasonable to expect the process will remain the same for the balance of exclusions. List 3 exclusions are valid through Aug. 7, 2020, and List 4A exclusions are valid through Sept. 1, 2020.
The chart below summarizes the exclusion extension process to date:
|List||Date Exclusions Granted||Last Day Exclusion Valid||Deadline for Comments for Extension*||Date Extensions Granted*||Extensions Granted*||Last Day Exclusion Extension Valid|
|* Cells are blank if a deadline has not been announced or if extensions have not been granted.
** These exclusions and/or amendments were granted after the USTR completed its review of List 1 and List 2 exclusion requests on Oct. 2, 2019. Unlike prior List 1 and List 2 exclusions effective for one year after being granted, these exclusions expire on Oct. 1, 2020.
*** A public inspection copy of the USTR’s notice for the third tranche of List 4A exclusions is available on the Federal Register website and states that the official notice is scheduled to be published in the Federal Register on Mar. 31, 2020.
Dinsmore & Shohl LLP continues to work with its clients during this U.S.-China trade dispute to evaluate options and develop strategies to mitigate the effects of Section 301 tariffs. This work includes reviewing tariff classifications on the Harmonized Tariff Schedule, reviewing the country of origin of imported products, evaluating potential changes to product supply chains and the possibility of setting up a foreign-trade zone (FTZ), and preparing product exclusion requests. For more information, contact Ivan W. Bilaniuk or your Dinsmore attorney.