United States Increases Section 301 Tariff Rate on "List 3" Goods to 25 percent, Clarifies Treatment of Goods Exported Before May 10

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White & Case LLPMay 10, 2019, the Section 301 tariff rate on approximately US$200 billion worth of "List 3" Chinese imports increased to 25 percent (from the previous rate of 10 percent), after US and Chinese negotiators failed to reach an agreement to avert the scheduled tariff increase.

The Office of the US Trade Representative (USTR) formally announced the tariff increase in a Federal Register notice published on May 9. USTR and US Customs and Border Protection (CBP) subsequently have issued new guidance clarifying that List 3 goods exported to the United States prior to May 10 are still subject to the previous (10 percent) Section 301 duty rate, as long as they entered the United States before June 1, 2019.

The White House announced late Thursday evening that the two sides would continue to conduct negotiations on Friday, May 10. However, an agreement to reverse the tariff increase does not appear to be imminent and further escalation of the trade dispute—including a potential fourth round of Section 301 tariffs on all remaining Chinese imports—remains possible. We discuss these developments below.

Applicability of Increased Duty Rate on List 3 Goods

As we have reported previously, USTR's May 9 Federal Register notice provides that the tariff increase on List 3 goods will be effective with respect to goods that are (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019; and (ii) exported to the United States on or after May 10, 2019. USTR and CBP have subsequently issued guidance clarifying this language. In a second Federal Register notice, USTR clarified that goods exported prior to May 10 are still subject to the previous 10 percent duty rate, as long as they entered the United States before June 1, 2019, (emphasis added):

In a notice published on May 9, 2019 (May 9 Notice), the U.S. Trade Representative (Trade Representative) increased the rate of additional duty from 10 percent to 25 percent for the products of China covered by the September 2018 action that are (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019. This notice provides that products of China that are covered by the September 2018 action and that were exported to the United States prior to May 10, 2019, are not subject to the additional duty of 25 percent, as long as such products are entered into the United States prior to June 1, 2019. Such products remain subject to the additional duty of 10 percent for this interim period.

In addition, CBP has issued guidance clarifying which products will be subject to the 10 percent duty rate and which will be subject to the increased 25 percent duty rate. In a May 10 Cargo Systems Messaging Service message, CBP stated the following:

Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, the rate of additional duties on imported articles classified in a subheading covered by the September 21, 2018 Federal Register notice, as amended, will be 25 percent ad valorem.

For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, report the following HTS numbers and duty rates:

HTS: 9903.88.03 and 9903.88.04

Duty Rate: 25 percent 

For subject goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on May 10, 2019, and before June 1, 2019, and exported to the United States before May 10, 2019, report the following HTS number and duty rate:

HTS: 9903.88.09

Duty Rate: 10 percent 

The subject imports of China that are entered into the United States on or after June 1, 2019 are subject to the 25 percent rate of additional duty under HTS 9903.88.03 and 9903.88.04.

Based on the above guidance, there are three potential tariff scenarios for List 3 goods exported from China to the United States:

Scenario 1: Goods exported prior to May 10 that entered the United States prior to June 1, 2019, are subject to a Section 301 duty rate of 10 percent;

Scenario 2: Goods exported prior to May 10 that entered the United States on or after June 1, 2019, are subject to a Section 301 duty rate of 25 percent;

Scenario 3: Goods exported on or after May 10 are subject to a Section 301 duty rate of 25 percent if they entered the United States

Outlook

The United States and China continued to hold bilateral negotiations on May 10 following the implementation of the List 3 tariff increase, but they have not confirmed whether the negotiations will continue beyond that date. Shortly after the US tariff increase took effect, China's Ministry of Commerce issued a statement reiterating that China "will have to take necessary countermeasures" in response to the List 3 tariff increase. China has not yet clarified these "countermeasures"; for example, by publishing a list of US goods on which it plans to increase import tariffs, but is expected to do so soon. The US tariff increase and expected Chinese retaliation will heighten tensions between the two countries and could potentially lead to a pause (or collapse) of the negotiations.

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