Apple Can’t Find Sourcing Outside China, It Says in 11 List 4A Tariff Exclusion Requests
Apple, Fitbit and SVS Sound were the first tech companies to seek product exclusions from the 15 percent Section 301 List 4A tariffs soon after the Office of the U.S. Trade Representative began accepting exemption requests at noon EDT Thursday (see 1910210069).
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The Apple Watch maker filed 11 requests, all saying it can't find sourcing outside China. Fitbit filed one request for its core fitness trackers and smartwatches, saying it deserves credit for shifting production away from China. Specialty Technologies, which does business as SVS, filed two -- one each for the finished speakers and subwoofers it sources from China -- both claiming it can't afford to jettison its long-term Chinese OEM.
Many of Apple's exclusion requests were for parts, components and accessories, as well as “final” products sourced as finished goods from China, including the Apple Watch, iMac desktop, HomePod smart speaker and AirPods wireless earbuds, said the docket. “Apple has not identified a source outside of China that is able to meet U.S. demand for this product in the coming year,” said each application.
Apple marked as “business confidential” summaries USTR asked for explaining the company's efforts to find sourcing in the U.S. or third countries. Apple also shielded from public view summaries of its arguments why it deserves the List 4A exemptions. The product is “not strategically important” to Made in China 2025 “or other Chinese industrial programs,” said Apple in each application. The company didn’t comment Friday.
Fitbit "began to adjust its operations" almost immediately after the Trump administration proposed tariffs on smartwatches and fitness trackers sourced from China, said the company. It "anticipates being able to make substantial additional changes to its supply chain in the foreseeable future," it said. Fitbit will shift production to "outside China" starting in January for “effectively all of its trackers and smartwatches” to escape tariff exposure, it said last month (see 1910090025). It announced Friday an agreement to be bought by Google for $2.1 billion (see 1911010003).
Though Fitbit's aware of Taiwanese and South Korean facilities producing smartwatches and fitness trackers, they're owned by or contracted to competitors, said the company. "Fitbit has taken significant steps to overhaul its supply chain and minimize its reliance on Chinese component suppliers and contract manufacturers. These efforts are continuing, with the ultimate goal of eliminating the use of Chinese manufacturers in the company’s U.S. supply chain wherever possible."
Chinese sourcing of key electronic components for Fitbit devices has been "eliminated," said the company. It has "begun the process of shifting certain assembly operations to third countries," it said. Fitbit took those steps "despite the costs and challenges of uprooting an established global supply chain that has been developed meticulously over more than a decade," it said.
SVS once built speakers in the U.S. when it had seven employees and generated annual sales of $2.5 million, it told USTR. Since "transitioning" to Chinese production eight years ago, SVS has grown to more than 35 employees and sales exceed $27 million, it said. "Through our partnership with our China based OEM, we were able to leverage all of their resources," including product development "specific to our line of products," it said. "These factors in total allow us to provide a much better finished product to the end consumer at a better retail price."
Attempts SVS made to again source in the U.S. or from third countries "were not successful," said the filings. "We have not been able to identify a manufacturer in the states or third countries that have the same ability to produce the product at the volumes needed while maintaining the level of quality we demand." Its Chinese OEM "has proprietary amplifier, driver and software technology that we are only able to provide to the consumer because of the manufacturer that we work with," it said. SVS CEO Gary Yacoubian previously told us his company was studying the viability of shifting production to Thailand or the Czech Republic (see 1906170018). Yacoubian declined comment Friday on the filings.
The public has two weeks to comment on an exclusion request once it's posted, and the requester would have seven days to respond, said USTR. Importers can file List 4A exclusion requests through Jan. 31 at USTR’s online portal. The docket posted about 80 requests from various industries that were filed the first day. Any exclusions granted would be good for a year and would be retroactive to Sept. 1 when List 4A took effect.