USTR publishes further guidance on impacted China-origin products subject to additional Section 301 tariffs

On 22 May 2024, the United States Trade Representative (USTR) issued a formal statement concerning recent updates to the Section 301 tariff actions and published a Federal Register Notice (FRN) detailing the conclusion of the statutory four-year review. The statement and FRN provide additional information for companies in consideration of the 14 May 2024 announcement from the White House and the USTR1 that formalized continued Section 301 of Trade Act of 1974 (Section 301) duties and intention to increase such duties between 2024 and 2026 on certain Chinese products in strategic sectors2 totaling US$18b.

The FRN provides further details on the products subject to additional tariffs, a discussion of potential eligible exclusions, as well as an opportunity for companies to comment on the proposed actions. Notably missing from the FRN is any mention of the soon-to-expire 429 product exclusions, as well as any discussion of Foreign Trade Zone or bonded warehouse treatment/implications of the tariffs. The key points are summarized below:

1. Classification of products subject to additional tariffs: 382 individual Harmonized Tariff Schedule of the US (HTSUS) subheadings are listed in Annex A of the FRN, Proposed Modifications to Section 301 Tariffs,3 and are briefly summarized in the table below.4 Refer to Annex A for complete HTSUS classifications and specific product descriptions. Effective dates of the tariff increase are on 1 August 2024, 1 January 2025 and 1 January 2026 for calendar years 2024, 2025 and 2026, respectively.

Note: Please review the USTR FRN for full details on the HTSUS subheadings as well as relevant product descriptions.

2. Tariff exclusion processes differ by products

a. For certain machines used in domestic manufacturing: As set forth in Annex B to the FRN, certain machines classified under Chapters 84 and 85 of HTSUS are eligible for consideration of temporary exclusion effective through 31 May 2025. The exclusion procedures will be published separately in a future Notice.

b. For 19 types of solar manufacturing equipment: As set forth in Annex C to the USTR FRN, certain solar machines classified under subheading 8486 of the HTSUS are eligible for consideration of temporary exclusion effective through 31 May 2025. The exclusion procedures will be published separately in a future Notice.

c. Current exclusions expiring on 31 May 2024: This USTR FRN does not include information about the 429 current Section 301 product exclusions expiring on 31 May 2024 (352 reinstated exclusions and 77 COVID-19-related exclusions). The USTR is likely to issue a separate Notice on these exclusions before end of May.

3. Public comment

The USTR encourages interested persons to submit comments on the web portal at https://comments.ustr.gov between 29 May 2024 and 28 June 2024, at 11:59 p.m. EST. The questions to guide public comments will be available 24 May 2024.

Any company involved in US-China trade should identify the potential impact of this additional increase in duties and explore potential mitigation strategies.

Immediate actions for companies involved in the strategic sectors to consider include:

• Submitting written comments to the USTR web portal by 28 June 2024 to provide company perspectives on the impact of additional Section 301 tariffs on business and the scope of exclusion(s)
  
  
• Closely monitoring and participating in any exclusion process the USTR may issue
  
  
• Reviewing tariff classifications relevant to the targeted strategic sectors, evaluating impact and taking actions for supply chain or manufacturing adjustments to mitigate potential tariffs
   

• Mapping their complete, end-to-end supply chain to fully understand the extent of products impacted, potential costs, alternative sourcing options, alternative manufacturing options, including relocation of production outside of China with a focus on country-of-origin planning as a means to mitigate impact
  
  
• Identifying strategies to defer, eliminate or recover the excess duties paid under Section 301, such as bonded warehouses, Foreign Trade Zones, substitution drawback, eligible Free Trade Agreements, and Chapter 98 (Special Classification Provisions)
  
  
• Exploring strategies to reduce customs value of imported products subject to the additional duties, such as reevaluating current transfer pricing approaches, reviewing potential to bifurcate product and non-product costs, and considering First Sale for Export into the US
  
  
• Reviewing contracts with suppliers and with customers to understand who has liability for increased duties and whether there are opportunities for negotiation
  
  
• Developing compliance processes and procedures that demonstrate reasonable care in the face of increased Customs enforcement and scrutiny
  
  
• Assessing whether US customs bonds are adequate to support the increase in tariffs

Additionally, US distributors that purchase from related parties will almost certainly have transfer prices impacted by the imposition of Section 301 duties. Along with the strategic importance of mitigating duty impact while aligning the income tax and customs approaches, affected parties should also review the mechanics for reporting any transfer pricing adjustments to US Customs. This process may be particularly complex when duties are present for only a portion of the year. US Customs has specific rules for reporting adjustments to prices made after importation, such as transfer pricing adjustments. These rules require the importer to take specific actions before importing goods for which prices may be adjusted, including adding customs-specific language to transfer pricing policies. With proper planning, refunds may be obtained on duties paid should transfer prices be reduced.