Trade Professionals Say Section 301 Exclusions Need Clearer Instructions, Avenue of Appeal

With the second round of announcements on Section 301 exclusions (see 1903010029), trade professionals are trying to find patterns of what is granted -- so far, 985 requests -- and what has been denied -- a little over 4,500. About 3,300 requests on hundreds of tariff lines have been tentatively approved by USTR, if CBP says the exclusions are administrable. Nicole Bivens Collinson, who leads the international trade and government relations practice at Sandler Travis, said that if all of those were to go through, about 45 percent of all requests would have been approved.

Richard Mojica, a trade lawyer at Miller & Chevalier, said, "The big question for me is, I’d like to crunch the numbers to know what the success rate is for exclusion requests that make it to that stage. What are some of the reasons when Customs finds they’re not administrable? If you make it to stage 3 you should be feeling pretty good about it -- but we don’t have the numbers to back it up."

He said he expects that with items that do not go from stage 3 to approval, the issue may be the difficulty for CBP of enforcing a carve-out to a tariff code. "For example, if you’re requesting an exclusion for blenders of the types used in commercial applications. That adds a level of subjectivity that requires Customs to look beyond the physical traits and consider its use. Those may be the tricky questions."

Mojica said that of the requests he submitted that have been denied so far, one of the two reasons for denial was that the Office of the U.S. Trade Representative said there was supply outside of China. Mojica said that "the supply outside of China was minimal, less than 5 percent."

Bivens Collinson also said some of those determinations were technically accurate but commercially invalid. She said some of her firm's clients said the outside-China supply that USTR identified is produced by a competitor that has a vertically integrated supply chain. "They're not going to give any of the supply to me," she said her clients told her. "I'm their competitor."

Mojica said: "The second reason that we received denials is USTR says that the company was unable to demonstrate that the tariffs equate to a severe economic harm to the company. And we’ve been baffled by some of those responses." He said some companies are so dependent on these imports that a 25 percent tariff could severely debilitate operations or even put the company out of business. He gave the example of a smaller electronics importer. The company asked retailers to share the cost of the tariff, or to raise the retail price to cover it. "The retailers have been unwilling to absorb those costs and in some cases they’ve dropped them from the shelves," he said.

Edward Steiner, a senior director in Sandler Travis's international trade and government relations practice, said it would be better if the process were iterative, as it is for the Miscellaneous Tariff Bill. Then, if USTR denied because of outside-China supply, the petitioner could explain that supply is from a competitor, and is not available to his company.

While all the granted exclusions have been from the initial list of tariffs on $34 billion worth of Chinese goods, trade lawyers wonder what will happen to the process if the composition of that list changes in a deal being worked on, or if the tariff rate is lowered. The USTR has refused to offer the possibility of exclusions to the largest tranche of Chinese imports targeted through Section 301, because that rate is only 10 percent.

Bivens Collinson said she thinks the List 3 10 percent tariffs will remain after a deal is struck, but that the 25 percent tariffs on List 1 and 2 could be reduced to 10 percent.

Mojica said he thinks it's somewhat likely List 3 tariffs could be removed -- because it is so large, there are a lot of voices lobbying against those tariffs -- but he said, "I wouldn’t be banking on any movement on List 1 and List 2."