Scrap Tariffs on Smartwatches, Fitness Trackers, or at ‘Very Least,’ Delay Them, Urges Fitbit
The “same concerns” that led the Trump administration to remove smartwatches and fitness trackers from the List 3 Section 301 tariffs on Chinese imports in September “continue to apply” with the proposed List 4 duties, commented Fitbit in docket USTR-2019-0004. Imposing 25 percent tariffs on those products in List 4 would cause Fitbit “significant and unavoidable economic harm," it said in comments dated Monday and posted Thursday.
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If the Office of the U.S. Trade Representative won’t remove all goods under the 8517.62.0090 tariff line from list 4, it should carve out wearable devices “classifiable under this subheading,” said Fitbit. “At the very least, Fitbit urges USTR to delay implementation of the tariff with respect to these products to allow additional time for consideration” of the arguments raised for excluding them from List 4, it said. USTR's Sept.18 notice setting in place the final List 3 tariffs didn't give agency's rationale for removing "certain consumer electronics products such as smart watches and Bluetooth devices" from tariff exposure.
The broad assortment of goods imported under the 8517.62.0090 subheading includes smart speakers and Bluetooth headphones, plus the smartwatches and fitness trackers that Fitbit said “comprise nearly all” its products. Those consumer items were removed from List 3 when USTR created the special new 10-digit 8517.62.00.90 subheading to contain those articles, while keeping in place the List 3 tariffs on modems, routers and network gateways in the previously existing eight-digit 8517.62.00 subheading (see 1809180020).
List 4 now includes that new 10-digit consumer-product subheading that was carved out from List 3 (see 1905140025), and Fitbit and others, including Fossil Group, want it carved out again. The U.S. in Q1 imported 30.22 million units of goods from China under 8517.62.00.90, worth $2.84 billion in customs value, said International Trade Commission data. A 25 percent tariff on those goods would have raised the Q1 import cost of the average device by $23.50 to $117.48.
Competition in the U.S. from Chinese brands “that are expanding rapidly in the global wearables market is a key concern regarding any trade action that will force U.S. companies to raise their prices,” said Fitbit. Huawei and Xiaomi compete in the wearables space “by operating on razor-thin profit margins for device sales, with an eye on expanding their user base and generating revenue through downstream products and services,” it said.
Any U.S. measure that puts American companies like Fitbit at a disadvantage against their Chinese competitors “risks backfiring” by advancing China’s “big data” initiatives under the Made in China 2025 industrial policy, said Fitbit. “By giving Chinese brands a competitive advantage in the U.S. market, a 25% tariff on wearables could give the Chinese government access to a wealth of sensitive personal information of Americans and inadvertently further these objectives in unforeseeable ways.”
As for Fossil, it recalls USTR "specifically crafted" the 8517.62.00.90 subheading to exempt smartwatches from the List 3 tariffs "after substantial comments at its public hearing and its receipt of comment letters," it said. "This tariff subheading (at the statistical suffix level) never existed before September 2018, and it represents USTR’s reasoned position that importers of these products should not bear the burden of paying these significant duties." Fossil urges USTR to "stand by the decision it reached" in September and remove 8517.62.0090 goods from List 4.
The National Retail Federation agrees with the need “to address China’s unfair trade practices and deliver a fair and balanced trade agreement that levels the playing field for U.S. businesses and workers,” testified David French, vice president-government relations, at the List 4 USTR hearings Friday. “We believe tariffs are the wrong approach” because they’re “taxes paid by American businesses and consumers, not foreign governments,” he said. “Countless retailers” are already feeling the pinch of tariffs “currently in place and are alarmed about the possibility of expanding tariffs to cover nearly everything the U.S. imports from China,” he said.
List 4 tariffs of 25 percent would raise U.S. consumer prices for TVs imported from China by 23 percent, said an NRF-commissioned Trade Partnership study released Friday. TV prices overall would increase by 4.1 percent on sets from all countries of origin, and U.S. consumers would “cut back on purchases of TVs by 7.8 percent,” it said. The tariffs would force consumers “to pay $711 million more than they otherwise would for the televisions they continue to buy,” causing a $322 million “hit” to the U.S. economy, it said.
Expect an announcement about the imposition of List 4 tariffs "any time" after the July 2 deadline expires for the submission of post-hearing rebuttals, blogged customs expert Ted Murphy, of Baker & McKenzie, on Friday. "What gets announced will largely hinge on the outcome of the meeting" between Presidents Donald Trump and Xi Jinping at the G20 summit, which opens Friday in Osaka, Japan, said Murphy.
Even if the Trump-Xi meeting goes well, "it will likely just pave the way for the more substantive negotiations to get back on track," said Murphy. He predicts Trump "goes ahead and imposes" the List 4 tariffs after returning from Osaka, "albeit at a rate lower" than 25 percent to start, as was done with the 10 percent duties on List 3, "to help force the parties to reach a resolution." If the Osaka meeting doesn't go well, List 4 tariffs would be a virtual certainty, he said.