Hardware Sets' Treatment by CBP Under Section 301 Tariffs Under Review, USTR Says

U.S. Trade Representative Robert Lighthizer told Sen. Todd Young, R-Ind., that the stacking of Section 301 tariffs on tool sets is being reviewed by the agency. Young mentioned the issue in written questions, submitted for the record of Lighthizer's June 18 hearing before the Senate Finance Committee, that the committee recently released. Young said he'd "been informed that some tool manufacturers are facing tariff rates of more than 50 percent" as a result of CBP rulings on the sets and the application of the 301 tariffs on goods from China. Young said that while so far, it's only affecting one industry, if List 4 tariffs go into effect, there could be a wider problem.

The lawmaker wrote to Lighthizer: "It is my understanding that CBP has interpreted USTR’s 301 notifications to mean that toolsets from List 3 that contain a product from List 1 are subject to the 25 percent duty rate for the List 1 tariff, and additionally the List 3 tariff duty rate (CBP ruling HQ H299857). Stacked together, this is essentially a 50 percent duty rate, plus the ad valorem duty, rather than the normal duty rate of the product with the highest duty rate in the set, or 25 percent. I am told CBP suggested they believe they are interpreting the application of the Section 301 tariffs appropriately, and would need guidance to change their current approach."

The ruling cited by Young (see 1810100040) and another more recent ruling that also involved Apex Tool Group (see 1904240014) found that the tool sets are classified based on the article subject to the highest rate of duty under General Rule of Interpretation 1. That tool set subheading duty rate is based upon whichever component has the highest rate of duty, and because one of the components was subject to the Section 301 tariffs, the entire set received the same rate. Because the subheading for tool sets was subsequently included in another list of Section 301 tariffs, the tariff rate increased even further.

Young asked: "Does USTR agree with CBP’s interpretation of its Section 301 notifications and agree that Section 301 tariffs are to be stacked in this manner?" Lighthizer responded: "USTR is aware of this issue with respect to applying Section 301 tariffs to tool sets. We are currently reviewing this issue." CBP didn't comment.

Marilyn-Joy Cerny, a trade attorney at Sandler Travis who is representing a client affected by this ruling, said that while her client was trying to get Congress's attention on the problem, Young was not one of the members targeted. Cerny, who spoke to International Trade Today on July 31, said it's good news that Young asked the question, because the more members of Congress that bring it up to USTR, the more he realizes that the way tariffs are being applied in this case is problematic. Young's office said an "Indiana stakeholder" talked about the problem, but declined to specify further. Lobbying disclosures show that Apex Tool Group hired Sandler Travis to lobby Congress on "Sec. 301."

Cerny said "we'll concede the 28.9 percent," which is the normal duty rate for the tool in the set with the highest rate, plus the 25 percent Section 301 tariff. But to say that the kit itself should be taxed at 25 percent, and add that rate to the 28.9 percent -- she thinks that doesn't make sense. She said there are a number of work-arounds companies could devise to avoid the more than 50 percent tariff -- they could import the tools in individual batches and package them into kits in another country, or they could source products from other countries. "Literally, I've spent all morning trying to institute a work-around," she said.