CBP will begin to apply a 25 percent Section 301 duty on goods found on a list of 818 8-digit tariff subheadings with country of origin China that are entered on or after 12:01 a.m. Eastern time July 6, said Alex Amdur, CBP director-antidumping and countervailing duty policy and programs, on a call held July 5 to answer questions from the trade community. Based on country of origin, not country of export, the tariffs will be applied based on the date of entry, and goods with an entry date prior to July 6 will not be subject, including in cases in which the filers “elect” such an entry date.
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
Correction: Section 301 duties on products from China that are set to begin July 6 will be eligible for drawback (see 1807030033), CBP said in a CSMS message.
Drawback will be available on entries subject to 25 percent Section 301 tariffs set to take effect July 6 on products from China, CBP said in updated guidance on the new tariffs. CBP also said that, when submitting an entry in which a heading or subheading in Chapter 98 is claimed on merchandise covered by the Section 301 tariffs, filers must first report subheading 9903.88.01 (the Chapter 99 subheading for the duties), followed by the applicable Chapter 98 subheading and the normal Chapter 1-97 classification. USTR released its final list of tariff subheadings covered by the tariffs on June 15 (see 1806150003).
Correction: Section 301 duties on products from China that are set to begin July 6 will be eligible for drawback, CBP said in a CSMS message.
The additional tariffs under sections 232 and 301 "place significant barriers on the fight against harmful fakes," a group of trade associations said in a June 26 letter to the House Ways and Means Committee leadership. "U.S. tariffs on critical imported machinery not only hurt industries, but the additional costs trickle-down to consumers thus, affecting their choices," said the American Apparel and Footwear Association, the American Bridal and Prom Industry Association, the Fashion Jewelry and Accessories Trade Association, the National Office Products Alliance, the Precious Metals Association of North America, and the Water Quality Association. "Rather than pay more for legitimate goods, we fear that consumers might seek cheap counterfeits as a replacement, whether knowingly or unknowingly. In other words, U.S. policy could help legitimize fake goods at the expense of rightful intellectual property owners."
Importers may need to up their customs bond amounts after the Section 301 25 percent tariffs take effect on goods from China, said Laura Siegel Rabinowitz, special counsel at Kelley Drye, in a June 28 blog post. "While bonds are based on imports for the previous twelve months, the time period is rolling and we expect CBP to be aggressively reviewing imports from China beginning on July 6," she said. Rabinowitz said that after "the Section 232 duties on imported steel and aluminum went into effect recently, CBP sent letters to certain importers giving them thirty days to increase their bonds to be commensurate with the new tariffs."
CBP provided some details on the coming duty collections on Chinese goods covered by the Section 301 tariffs (see 1806150003) in a June 28 CSMS message. "In addition to reporting the Chapters 1-97 HTSUS classification of the imported merchandise, importers shall also report the 9903.88.01 special tariff number for goods subject to the additional duty assessment of 25% ad valorem as a result of the Section 301 trade remedy," CBP said. The tariffs only "apply to products of China, and are based on the country of origin, not country of export." CBP said the additional duties won't apply "to products for which entry is properly claimed under a heading or subheading in Chapter 98," which covers returned U.S. goods.
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The Trump administration appears likely to follow through with its threat of adding 10 percent Section 301 tariffs on $200 billion worth of Chinese goods (see 1806180058), Ethan Harris, coordinator for Global Economics at Bank of America Merrill Lynch Research, said in a June 20 research report. "Further escalation seems likely," he said. "Once the dust settles on the $50bn in tit-for-tat tariffs between the US and China, we expect the Trump administration to follow through with $100-$200bn in additional tariffs and we expect China to respond in kind. Because China imports less from the US, as they move into this next round they will likely raise tariffs by a higher percentage amount and/or adopt non-tariff retaliatory measures."
CBP has “adjudicated” a ruling that will allow manufacturers in foreign-trade zones to avoid Section 232 tariffs on aluminum and steel, as well as planned Section 301 tariffs on products from China, a CBP official said on the agency’s biweekly ACE conference call held June 21. FTZ manufacturing operations have up to now been required by Census Bureau and Commerce Department guidance to enter goods manufactured in FTZs as originating in the country that provided the goods’ highest value in inputs, even if those inputs are worth relatively little and for CBP purposes the country of origin should be the United States. While it hasn’t been an issue before, now that Section 232 duties are in place and Section 301 tariffs are coming it can result in those manufacturers being required to declare a good as subject to the extra tariffs even when the good is of U.S. origin. A ruling is coming that says to use “U.S.” as country of origin for such merchandise on entry documentation, the CBP official said. A search on CBP’s CROSS database indicates the ruling has not been published as of press time.